 "IndusInd Bank seeks to offload Rs 1,573 crore of microfinance loans")
Private sector lender IndusInd Bank is seeking to offload Rs 1,573 crore of non-performing microfinance retail loans, amid mounting stress in the microfinance sector. The bank plans to auction these distressed assets to interested entities through a public bidding process.
The bank is looking to offload a portion of non-performing microfinance retail loans from over a million accounts and has invited bids on a full cash basis (100 per cent cash basis) from entities interested in acquiring these assets, according to the auction document. The reserve price set by the bank for selling the assets is Rs 85 crore, which would translate into a recovery of 5.04 per cent.
The bank does not hold any collateral against these loans, as they are unsecured in nature. In its auction document, the bank said parties interested in taking part in the auction are requested to intimate their willingness to participate by submitting, in writing, their expression of interest (EOI)…latest by December 30.
According to industry insiders, despite the stress in the microfinance industry, there will likely be demand for loans put up for sale by banks, provided the price is right. Tentatively, they believe that if banks sell the loan pool at 10 per cent of the outstanding book value, there could be a strong interest from potential buyers.
IndusInd Bank saw its net profit plummet nearly 39 per cent year-on-year (Y-o-Y) owing to higher provisions. The higher provisions were mainly due to rising stress in the microfinance portfolio of the bank. Outstanding slippages in the microfinance book of the bank stood at Rs 2,259 crore at the end of the September quarter (Q2FY25), which was higher than Rs 1,998 crore in the June quarter (Q1FY25).
As of the September quarter, the bank's microfinance portfolio stood at Rs 32,723 crore, accounting for 9 per cent of its total loan book. The portfolio contracted in Q2 due to stress in the segment, which adversely impacted the bank's margins.
“Margin is predominantly impacted because of the lower microfinance contribution, almost 1 per cent lower in the balance sheet and it earns around 10-12 per cent more than the average yield on the total assets,” the bank’s management had said during the analyst call after the banks’ Q2 earnings.
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An email sent to IndusInd Bank did not elicit any response till the time of going to press.
The microfinance sector has been grappling with persistent challenges and obstacles over the past five to six months, resulting in a notable deterioration in asset quality. Industry-wide stress in the microfinance sector has built up unchecked credit growth and the issuance of multiple loans to customers on fake voter ID cards among other documents, which resulted in significant overleveraging among borrowers.
According to a report by Motilal Oswal, the stress in the MFI sector in the current cycle will last for the whole of FY25, and the sector will begin to exhibit signs of normalisation only at the onset of FY26.
Previously, in November, Ujjivan Small Finance Bank put on the block Rs 270 crore worth of non-performing assets and wrote off microbanking loans. Of the Rs 270 crore worth of loans, around Rs 208 crore are non-performing loans, and the rest Rs 62.36 crore worth of loans have been written off by the bank. The bank was carrying an overall provision of 85.61 per cent on the pool of micro-banking loans it was looking to sell.