Q1 disbursement dip seen as temporary; Q2 growth expected with new loans : Sadaf Sayeed
repayment track record
is almost 97-98% on time. So, the guardrails have been quite helpful for the industry's health and have had a positive impact," says
Sadaf Sayeed
, CEO,
Muthoot Microfin
.
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What has been the impact of the Mfin and can you quantify by when you expect an improvement in the overall business performance trajectory? How do you see the business evolving, and when do you expect it to improve further?
Sadaf Sayeed:
To answer your question, this is actually the second version of the guardrails implemented by Mfin. The first set of guardrails was introduced in August 2024, and subsequently, guardrail 2.0 was implemented starting April 1st. The impact has been positive for the industry.
From an industry perspective, the percentage of borrowers with multiple loans — defined as those having more than four loans — was around 20%, which has now come down to approximately 8%. At Muthoot Microfin, we have been strictly following these guardrails and remain prudent lenders. We have been cautious with lending, and the percentage of overleveraged customers—those with exposure of more than two lakh rupees—has come down to 1% for us. Also, customers with more than four loans have decreased to 4.7%, compared to 10.8% at the start of the guardrail implementation.
This is a positive trend. Among customers with less leverage—either unique to us or with us plus one other trade line—the repayment track record is almost 97-98% on time. So, the guardrails have been quite helpful for the industry's health and have had a positive impact. Of course, Q1 is usually a slow quarter for the financial services industry. However, considering these new guardrails and the overall macro environment, our company disbursed around 175 crores in loans, benefiting a total of 311,000 borrowers. This is just about 9.4% lower than our Q4 disbursement, which in itself is a positive trend.
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I must say
microfinance
is turning a new leaf. The impact of the last financial year and previous challenges are behind us because, economically, the macroeconomic situation is improving. We had a good Rabi crop and harvest, which brought strong cash flow into the rural economy during Q1. Also, Q1 follows Q4, which typically sees the highest volume of microfinance disbursements, leaving a lot of cash in our customers' hands, enabling better instalment servicing. As a result, our collection efficiencies have improved, and the portfolio we are generating now has 99.3% repayment on time.
Your disbursements are on a declining trend while the borrower base has increased marginally. What factors are driving this trend, and how do you plan to address it?
Sadaf Sayeed:
There are two factors here. First, as I mentioned, the decline is marginal and reasonable for Q1. We anticipate a significant improvement in Q2, as July itself showed good disbursement trends, and August is expected to follow similarly.
We have taken a very calibrated approach towards lending, focusing on existing customers eligible for higher loan amounts and who fall into a category above typical microfinance customers. Many have been with us for seven to eight years, and we believe they can graduate to higher loan categories.
In our last quarterly presentation, we highlighted that out of our total 3.4 million customers, around 1.237 million have retail loan exposure elsewhere. We aim to offer them better solutions and services through Muthoot itself. We have identified about 440,000 customers with credit scores above 730, which is considered very prime in microfinance and retail lending.
We are focusing on these customers and have launched three new products: Micro-LAP (loan against property ranging from one lakh to seven lakh), individual loans up to five lakh rupees (which do not require group guarantees), and gold loans. This strategy will drive growth from our existing customer base, along with expansion into new territories like Assam, where we have opened branches.
A quick view on the gross NPAs, which have remained stable since the last quarter. How much of this is attributable to the Karnataka crisis, and what is the current collection efficiency? Do you expect any near-term improvement?
Sadaf Sayeed:
That is a very good question. We had already made provisions related to Karnataka in the last quarter. We made a management overlay of around 230 crores then. In this quarter, we have utilized 132 crores of that overlay to write off some bad loans flowing from Karnataka. We still carry 97 crores of provision as part of the overall Expected Credit Loss (ECL) calculation.
Karnataka's collection efficiency is improving; it had fallen to as low as 73% at the crisis peak but has now risen to 87%. Overall company collection efficiency stands at 93% and is consistently improving. Our regular collections, or ex-bucket collections, are at 99.3% for the company and 99% for Karnataka.
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