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<div type="image" title="The RBI has cracked the regulatory whip on NBFCs and banks, who&amp;#39;ve been pushing microfinance and unsecured loans aggressively to grow their loan books." agency="ANI" msid="114778648" hostid="261" caption="&amp;lt;p&amp;gt;The RBI has cracked the regulatory whip on NBFCs and banks, who&amp;#39;ve been pushing microfinance and unsecured loans aggressively to grow their loan books.&amp;lt;/p&amp;gt;"></div> Imagine this. You have a younger sibling you’re mighty envious of. And why not? Unlike you, they seem to enjoy all the freedom and money in the world. They party like there’s no tomorrow, and here you are, stuck in a boring, ultra-disciplined but responsible routine that feels completely devoid of any independence, and mostly, funds. But of late, things are changing. This sibling is in massive trouble and just cannot escape the parent’s wrath anymore. Long story short, the party is over, and it is time to go back home. The rising defaults on this sibling’s part have now begun pulling the entire house down, thereby attracting the regulator’s ire. <h2>The Wild West of <keyword id="113684" type="General" weightage="20" keywordseo="microfinance" source="Orion">microfinance</keyword> and unsecured loans</h2>It's hard to ignore the issues with microfinance and unsecured loans in India. Many saw them as a small gamble and ignored the rising defaults much like the younger siblings’ tantrums, and now they find themselves in hot waters. The skyrocketing instances of non-payments aren't a micro-issue anymore and are threatening the stability of the entire banking system. In the quarter ended September 30, 2024, 5 of India’s 8 largest private sector <keyword id="19934118" type="General" weightage="20" keywordseo="banks" source="keywords">banks</keyword> reported a steep rise in their bad loan book, mostly thanks to microfinance loans. Some banks, in a bid to strengthen their fortress against these <keyword id="142154" type="General" weightage="100" keywordseo="bad-loans" source="Orion">bad loans</keyword>, have significantly upped their provisions. For instance, IndusInd Bank set aside Rs 525 crore during July and September 2024 to battle the menace of defaults on microfinance loans, which make up about 9% of its total loan book. See, banks rely heavily on their interest income, which they earn from advancing loans. Any loan where the borrower has not paid interest to the bank or defaulted for 90 days or more becomes bad, i.e. an NPA, or non-performing asset for the bank. And who likes things going bad? Simply put, there has been a steep rise in three areas, much to the dislike of banks and MFIs (micro-finance institutions). But hey, it's mostly their doing! <ol><li>GNPA ratio (gross net performing assets): The quantum of non-performing assets a bank has in proportion to its total assets.</li><li>Provision: The amount banks set aside to take care of such NPAs.</li><li>Slippage ratio: The rate at which good girls go bad, or the speed at which good loans turn into NPAs</li></ol>But how are these plaguing the Indian banking sector? And what does the road ahead look like? We decode it for you. <h2> Microfinance: A not-so-micro-menace</h2>Microfinance loans were initially brought forth for low-income households and individuals i.e. for those who might not generally have access to traditional ways of credit, like bank loans and more. They don’t require collateral or an asset to be pledged in lieu of the loan, making it a tad bit easier for borrowers. As of June 2024, the amount of outstanding loans in the microfinance industry stood at a staggering Rs 4,20,256 crore. Of this, NBFC-MFIs accounted for 40% and banks made for 33% of these. In 2022, RBI, in a bid to inspire some competition in this space, did something radical-they did away with the ceiling on how much interest MFIs could charge their customers. Previously, MFIs could add up to 12% to their cost of acquiring funds to determine the final interest rate chargeable to the consumer. So, assuming that Bank A incurs a 5% cost to acquire funds for further loaning, A could charge up to 17% interest from the end consumer. So, interest rates were in the hands of MFIs, and boy, did they have a gala time with it. Instead of spurring some healthy competition, as RBI expected, MFIs and banks went rogue and all guns blazing, competing for the title of “Who will charge the highest interest?” Recently, RBI banned 4 microfinance institutions (MFIs), namely Asirvad Micro Finance Limited, Arohan Financial Services Limited, DMI Finance Private Limited, and <keyword id="20117932" type="General" weightage="20" keywordseo="navi-finserv" source="keywords">Navi Finserv</keyword> from disbursing loans effective October 21, 2024. Why? Because they were charging 14% extra interest over their original cost of funds. To maintain their loan books (and pockets), banks and NBFCs resorted to shady practices like netting off loans, which RBI has now advised MFIs against. Here, lenders allow borrowers to settle a previous outstanding loan by issuing them a new loan! As crazy as it sounds, it helped banks to report less of their total assets as NPAs, since the new credit would cover pending instalments of the borrower’s previous loan. Then there was the issue of borrowers overleveraging, i.e. taking multiple loans using different IDs from various lenders and then failing to honour any of them. The consequence? Banks and NBFCs end up with massive NPAs. Data from credit bureaus suggests that over the last quarter, there was a 17.2% rise in the number of borrowers who had 5 or more active loans at the same time. <h2>Growth &gt; Caution</h2>It's an age-old tale unfolding yet again in India’s banking sector- Icarus flew too close to the sun and eventually, fell to its death. Between April and June 2024, NBFCs microfinance portfolio jumped by 2.7%. If you see this in terms of loan sources, microfinance loans issued by banks grew by 11.2% in Q1FY25. But the same portfolio in NBFCs swelled by almost double-23.9%. While most of these loans had an average ticket size between Rs 30,000-50,000, there was a sharp spike in the number of loans that had a ticket size of Rs 80,000 or more. Data suggests that as of March 2024, more than 12% of all microfinance borrowers had over 4 or more active loans. In dating parlance, this is a classic case of borrowers going polyamorous, minus the honesty and transparency. Not the best of situations, you'd agree! <h2>Will banks and NBFCs stand up to this stress?</h2>If their results for Q2FY25 are to be believed, NBFCs are not handling the pressure all that well. Or even slightly well. Only a few banks like Bank of Baroda (BoB), ICICI, and Indian Bank were up for the battle, even witnessing a decline in their loan delinquencies. Some others, like IndusInd Bank, saw their stock dip by a massive 16.2% over the last 5 days. Its slippages in the previous quarter burgeoned from Rs 15.3 billion in Q1FY25 to Rs 17.9 billion in Q2. As a result, the bank pushed a staggeringly high amount of money to create an NPA cushion for itself. While its management has highlighted its preference for secured lending, that was hardly reflected in its actions during the quarter, where growth in unsecured personal loans remained exceptionally high at over 7% on a QoQ basis. Turns out, only 44% of customers in IndusInd Banks’ microfinance loan portfolio were exclusive to it. The rest 47% were, you guessed it right-polyamorous! 27% had borrowed from another lender as well, apart from IndusInd Bank, while 20% were those who had outstanding loans with two other lenders, apart from IndusInd Bank. IndusInd Bank’s credit card segment did not miss the NPA bus and accounted for 7-8% of its GNPAs. Canara Bank’s total slippages during the previous quarter jumped to Rs 11.1 billion, up by 24.7% QoQ, and making up for 3.6% of its total loans. As for Bandhan Bank, its gross NPA for Q2FY25 inched up on a QoQ basis, up from 4.23% in Q1, to 4.68% in the second quarter. IDFC Bank’s heavy provisioning for its NPAs marred its profits significantly, causing its PAT (profit after tax) to dip by 73% on a YoY basis. Data from ICRA Analytics suggest that the AUM (asset under management) growth in microfinance loans and unsecured (personal and business) loans by the NBFCs will moderate to 10-12% and 19-21%, respectively, in FY2025 compared to 30% and 38%, in FY2024. Says A M Karthik, Senior Vice President &amp; Co-Group Head, Financial Sector Ratings, ICRA, “As bank funds constitute a larger share in the overall funding of NBFCs, a slower credit flow from banks to the NBFCs will compress their AUM growth. The NBFCs in unsecured and digital lending businesses shall face a higher squeeze in funding compared to others, and the unsecured lending space will continue to be a source of stress in the near term.” There has been uninhibited growth in <keyword id="6051027" type="General" weightage="20" keywordseo="Unsecured-loan" source="Orion">unsecured loan</keyword>s, apart from just the microfinance segment. For instance, Axis Bank’s gross slippages jumped by Rs 4,443 crore, largely thanks to its unsecured business. The same is the case with Yes Bank, which saw 35–40% of its retail slippages emerging from the unsecured loan portfolio. <keyword id="6376194" type="General" weightage="20" keywordseo="kotak-mahindra" source="Orion">Kotak Mahindra</keyword> Bank was also quick to follow Yes Bank’s suit, with around 35%-40% of its slippages coming from credit cards. <h2>How is the road ahead?</h2>While RBI has just cracked its whip and served a warning at the moment, experts at Morgan Stanley believe that more changes (read regulatory lashes) are underway. Moreover, with both festive and wedding seasons underway in our country, unsecured lending might pick up momentum, much to the disdain of the calibrated approach banks have been taking towards it so far. But if the situation doesn't improve, RBI will not waste any time in becoming the typical tyrannical <keyword id="19897820" type="General" weightage="20" keywordseo="bollywood" source="keywords">Bollywood</keyword> headmaster who runs his dominion with an iron fist. However, that's a story for another day. Do you have a topic in mind you'd want a simpler explanation for, or insights or personal experience to share on personal finance and more? Contact us at businessinsider@timesinternet.in.

Simply Put: Is the lending party over? The dangerous tango of Indian banks with microfinance and unsecured loans

New Delhi [India], November 29: The SUV segment is witnessing tremendous growth in India. Attractive designs, feature-loaded cabins, higher ground clearance for broken roads, and butch road presence are some of the reasons behind the surging popularity of SUVs. Mahindra &amp; Mahindra, with its strong SUV heritage, currently has three of the hottest-selling SUV models in its portfolio - the <keyword id="6871125" type="General" weightage="20" keywordseo="xuv700" source="Orion">XUV700</keyword>, <keyword id="177599" type="General" weightage="20" keywordseo="thar" source="Orion">Thar</keyword>, and <keyword id="13987144" type="General" weightage="20" keywordseo="scorpio-n" source="Orion">Scorpio N</keyword>. Owing to the high demand from customers, these vehicles command waiting periods ranging from 3 months to as long as 16 months! Mahindra XUV700: Up to 9 Months Waiting The XUV700, launched in 2021, is Mahindra's new flagship SUV. With its aggressive styling, premium interiors, potent engine options and generous features, the XUV700 has struck a chord with Indian SUV buyers. Pricing &amp; Positioning The XUV700 is a midsize SUV priced from Rs 14.03 lakhs to Rs 26.57 lakhs (ex-showroom). It competes primarily with 5/7-seater SUVs like Tata Safari, MG Hector Plus, Hyundai Alcazar and Skoda Kodiaq. Design &amp; Engineering The XUV700 has a bold and muscular exterior profile accentuated by the sleek LED headlamps integrated with the grille. The interior follows a black and beige dual-tone theme with soft-touch materials and premium finishes. Underpinning the SUV is a monocoque chassis made using high-tensile steel for rigidity and safety. Variants &amp; Colour Options It is offered in 2 broad trims - MX and AdrenoX (AX), comprising AX3, AX5 and AX7 variants. Colour options include Everest White, Midnight Black, Dazzling Silver, Red Rage and Electric Blue. Engine, Transmission &amp; Mileage The XUV700 lets buyers choose between two powerful engine options - a 2.0-liter turbocharged petrol and a 2.2-liter diesel motor. The petrol engine churns out 200 horsepower while the oil burner produces 185 horses. Both engines come mated to 6-speed manual as well as automatic transmissions. The top-end AX7 diesel variant also offers an optional all-wheel drive system for enhanced grip and control. In terms of fuel efficiency, the official ARAI testing claims the XUV700 delivers anywhere between 16-20 km/litre, depending on the exact variant you pick. Interior, Comfort &amp; Safety Features The XUV700's cabin offers an expansive space and a long list of features. It gets a large 10.25-inch touchscreen, panoramic sunroof, 7-inch digital driver display, connected car features, 6-way powered driver seat, dual-zone climate control, 12-speaker Sony sound system and more. Safety is comprehensively addressed with up to 7 airbags, ABS with EBD, ESP, hill-hold control, tyre pressure monitoring system and ADAS tech. The ADAS suite includes adaptive cruise control, autonomous emergency braking, lane departure warning, blind-view monitoring and more. Why is it in High Demand? The XUV700 strikes an excellent balance between features, performance and price. The SUV looks ultra-modern, offers a premium connected car experience at par with cars from higher segments, provides spirited performance, and focuses on safety. Attractive pricing has sealed the deal for buyers as the XUV700 offers terrific value. Mahindra Thar: 15-16 Months Waiting Period The new 2nd generation Thar went on sale in 2020. With its iconic retro design, unrivalled off-roadability and modern creature comforts, the SUV has become a hot seller, with waiting times extending to 15-16 months. Pricing &amp; Positioning The new Thar is priced from Rs 10.98 lakhs to Rs 16.94 lakhs (ex-showroom). It fills the slot of an affordable compact off-road SUV, similar to Force Gurkha. Design &amp; Engineering The new Thar carries forward the charm of the original Thar with its boxy profile, round headlamps and removable doors/roof. The interiors now get a major upgrade with touchscreen infotainment, steering-mounted controls, rear parking sensors, remote key and more. It retains rugged mechanics like a 4WD drivetrain, mechanical locking differentials, low-range gearbox and high ground clearance. Variants, Colors &amp; Seating Options It is offered in AX(O) and LX variants with a choice of 6 colours and a 4-seater configuration. Engine, Transmission &amp; Mileage Engine options include - 1.5L diesel, 2.0L turbo petrol and 2.2L diesel. Gearbox choices for these motors are 6-speed manual and automatic. ARAI mileage ranges from 15-18 km/l. Interior, Comfort &amp; Safety Features The cabin now features a 7-inch touchscreen, power windows, remote keyless entry, rear parking sensors, tilt adjustable steering and more. Safety is taken care of by dual airbags, ABS with EBD, rear parking sensors, seat belt reminders and more. Why is it Popular? The Thar blends iconic design, excellent off-road hardware, and modern comfort &amp; convenience features. Its capabilities to conquer rough terrain are unparalleled in its price range. The new Thar offers a unique driving experience - open-air motoring with the wind in your hair! Mahindra Scorpio N: Up to 11 Months Waiting Period The "Big Daddy of SUVs," the all-new 3rd generation Scorpio N, is the latest addition to Mahindra's SUV portfolio. Launched in 2022, the SUV has received a strong response, with bookings exceeding 1 lakh units, resulting in waiting periods of up to 11 months. Pricing &amp; Positioning The Scorpio N is positioned as an affordable 7-seater midsize SUV with prices ranging from Rs 13.26 lakhs to Rs 24.54 lakhs (ex-showroom). It rivals the MG Hector, Tata Harrier and Kia Seltos. Design &amp; Engineering The Scorpio N sports a radical design overhaul inside and out. The sophisticated new styling is complemented by a high-quality cabin loaded with features. Underpinning it is an advanced new 3rd generation body-on-frame platform. Variants, Colors &amp; Seating Options It is sold in Z2, Z4, Z6 and Z8 variants. Dual-tone colour themes are available across variants. Choice of 6 or 7-seater layouts. Engine, Transmission &amp; Mileage The Scorpio N lets you pick between two powertrain options - a 2.2-litre diesel engine and a 2.0-litre turbo-petrol motor. The oil burner churns out 132 PS of peak power while the turbo-petrol generates a healthy 203 horses. Both these engines come mated to 6-speed manual as well as automatic gearbox options. So whether you prefer self-shifting or the convenience of an auto, the Scorpio N has got you covered. In terms of efficiency, Mahindra claims the SUV can deliver up to 18 km/l as per ARAI tests. Real-world mileage is likely to be in the 12-15 km/l ballpark, which is quite respectable for this class of vehicle. Interior, Comfort and Safety Features The feature-loaded cabin gets an 8-inch touchscreen, UVO-connected car tech, 12-speaker Sony sound system, dual-zone climate control, 6-way powered driver seat, panoramic sunroof and more. The safety kit consists of 6 airbags, ABS with EBD, hill descent control, rear parking camera, TPMS and more. Higher variants also add on ADAS tech. Why is it in demand? The Scorpio N impresses with its striking new design, premium interiors, powerful engine performance and extensive features. Generous space for seven adults, strong build quality, and Mahindra's trusted brand name further attract buyers. The Bottom Line Attractive pricing, modern designs and extensive feature lists make the XUV700, Thar and Scorpio N a hit among SUV buyers. As a result, customers are facing long waiting periods of 3 to 16 months, depending on the chosen model and variant. However, the lengthy wait is well worth it, considering the excellent package Mahindra has put together with these new-age SUVs. (ADVERTORIAL DISCLAIMER: The above press release has been provided by ATK. will not be responsible in any way for the content of the same)

Thar, Xuv700, Scorpio N are the Mahindra's highest waiting cars

New Delhi, <keyword id="19993913" type="General" weightage="20" keywordseo="mahindra-mahindra" source="keywords">Mahindra &amp; Mahindra</keyword> on Friday said its total sales increased 24 per cent to 72,923 units in February. The company's total dispatches to its dealers stood at 58,801 units in February 2023. The Mumbai-based auto major's passenger vehicle sales in the domestic market rose 40 per cent to 42,401 units last month against 30,358 in February last year, the auto major said in a statement. "In our endeavour to make some of our SUVs available faster to consumers, we launched the Scorpio N Z8S variant and the <keyword id="20787041" type="General" weightage="20" keywordseo="thar-earth" source="keywords">Thar Earth</keyword> edition this month," Mahindra &amp; Mahindra President (Automotive Division) <keyword id="20273717" type="General" weightage="20" keywordseo="veejay-nakra" source="keywords">Veejay Nakra</keyword> said. The company's total tractor sales last month stood at 21,672 units, a dip of 16 per cent as compared to 25,791 units in the same month last year.

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Simply Put: Is the lending party over? The dangerous tango of Indian banks with microfinance and unsecured loans

Ira Alok Puranik

Thar, Xuv700, Scorpio N are the Mahindra's highest waiting cars

ANI

Mahindra wholesales rise 24% in February at 72,923 units

PTI

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