Small Finance Banks, banks cede MFI market share to NBFCs

The share of NBFC-MFIs increased from 32% to 37% in the time period

Small finance banks (SFBs) and their larger peers lost market space in the microcredit segment last year, while non-banking finance companies (NBFCs) increased their share.

According to data from Microfinance Institution Network (MFIN), the share of SFBs in microcredit loan outstanding dipped from 22 per cent at the end of December 2017 to about 18 per cent at the end of December 2018.

Also, the share of banks in microfinance loans outstanding decreased from 37 per cent in December 2017 to nearly 32 per cent in December 2018. 

The shift of the microfinance sector from banks to NBFCs has been driven by a positive funding scenario for NBFC-MFIs, both in terms of equity and debt. At the same time, SFBs had to bear the cost of transition from MFIs to banks. 

Also, hit by debt waivers and high NPAs, banks have not been less aggressive in microlending than a couple of years ago.

The share of NBFC-MFIs increased from 32 per cent to 37 per cent in the time period. The share of NBFCs too increased from 8 per cent to 11 per cent in the last year. 

“After a gap of two years, the NBFCs started getting funds last year. This helped them grow their balance sheets, while the SFBs and banks remained almost at the same level,” said Rakesh Dubey, CEO, SV Creditline and a member of the governing body at MFIN.

According to SFBs, the efforts to diversify products offering and the cost of transition from an MFI to SFB could be one of the reasons behind the fall in market share.

“The fall in market share might be on account of diversification of SFBs in non-microlending areas. However, there is no strategic shift away from microfinance. The marginal cost of funds went up because of the transition,” said Rajeev Yadav, MD and CEO of Fincare Small Finance Bank.

For most SFBs, more than 80 per cent of the books comprises microfinance. While in transition, the SFBs have been hit hard by demonetisation and debt waiver schemes. 

In the 2017-18 financial year, small finance banks posted a collective net loss of Rs 2,020 crore, against a net profit of Rs 140 crore the previous year, according to the Reserve Bank of India data. The gross NPA of the SFBs increased from 1.8 per cent in FY17 to 8.7 per cent in FY18. Much of the damage was because of the impact of demonetisation, debt waiver schemes and cost involved in the transition from MFIs to SFBs.