Ujjivan Small Finance Bank looks to sell Rs 270 cr of micro-banking loans

Ujjivan Small Finance Bank on Friday said it is looking to sell Rs 270 crore worth of non-performing and written-off micro-banking loans to asset reconstruction companies (ARCs), the bank informed the exchanges.

 

Of the Rs 270 crore worth of loans, around Rs 208 crore are non-performing loans, and the remaining Rs 62.36 crore worth of loans have been written off by the bank.

 

The bank said it is carrying an overall provision of 85.61 per cent on the pool of micro-banking loans it is looking to sell.

 

Stress in the microfinance sector increased significantly during the July–September quarter, with major banks and microfinance institutions reporting a noticeable impact.

 

 

The current state of the microfinance sector is being attributed to several factors, including but not limited to: customer overleveraging and inability to repay, resulting in low centre meeting attendance; lending to customers with multiple fake voter ID cards categorised as new-to-credit (NTC) customers; defaults from ‘ring leaders’ or ‘intermediaries’ in some pockets of the country; and high attrition at the field officer and even branch manager levels.

 

Additionally, heavy rainfall and floods in certain regions, which adversely impacted customer earnings and repayments, also contributed to the stress.

 

According to industry insiders in the ARC sector, 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 strong interest from potential buyers.