Inspira- Journal of Modern Management & Entrepreneurship (JMME) 66

ISSN : 2231–167X, Impact Factor: 6.280, Volume 12, No. 01, January-March 2022, pp. 66-72

A CRITICAL STUDY ON NON PERFORMING ASSETS OF

MICROFINANCE INSTITUTIONS IN INDIA
(WITH SPECIAL REFERENCE TO PRE AND POST COVID-19)

Yasmeen Khan
**
K.S. Thakur

ABSTRACT

In this present scenario we can observe a sea level change in the Micro Finance Sector.
Microfinance is an important instrument for both Lenders as well as Borrowers. Growth of Microfinance in
India contemplates rapid increase in the demand of credit, savings, insurance and remittances. Due to
the timely verge such as Financial Inclusion, Aadhar Enabled Payments, Business Correspondent Model
and Pradhan MantriJan DhanYojana taken by Government of India, the coverage of Microfinance
Institutions are growing. Non-Performing Asset is considered as one of the best indicator of financial
health of financial institutions. During COVID-19 Non Performing Assets of Microfinance in India has
become a major concern for Microfinance Institutions. COVID-19 flicks the whole Indian economy in
terms of growth and development. Before COVID-19 hit economy was already facing crisis related to
cash flows.COVID-19 crisis becomes a big challenge for Microfinance institutions as well as for lenders
and borrowers. This paper is an attempt to find out the various factors for the growth of Microfinance
during Pre and Post COVID-19, to examine the various reasons for effect on Non-Performing Assets of
Microfinance Institution during Pre and Post COVID-19 to assess the critical analysis on Non-Performing
Assets of Microfinance Institution and examine the impact of Pre and Post COVID-19 and to suggest
various parameters for better control on Non-Performing Assets of Microfinance Institutions.
KEYWORDS: Non Performing Assets, Microfinance, COVID-19.
_______________

Introduction
“Microfinance has already shown that enabling the poor to empower themselves
economically can be a good business.”Micro Finance refers to the provision of affordable financial
services such as small loans, small savings, micro insurance and funds transfer facilities extended to
socially and economically poor and disadvantaged segments of the society to enable them to increase
their income levels and improve standard of living. Micro finance originated in Bangladesh with the
institution of Grameen Bank in 1983. The basic principles of micro finance that distinguish it from the
earlier modes of credit delivery are small amounts of loan, lack of physical collateral but emphasis on
social collateral or peer monitoring and focus on women borrowers. With these three factors, micro
finance is expected to effectively tackle the three problems that are often encountered in any credit
delivery program designed for the poor namely, targeting, screening of borrowers, and enforcement of
the credit contract. The micro finance experiment in India has been described by NABARD as
relationship banking rather than parallel banking elsewhere in the world. In this experiment, there exists a
link between SHGs, NGOs and Banks.
A Non Performing Asset (NPA) is a classification used by financial institutions for loans and
advances on which the principal is past due and on which no interest payments have been made for a
period of time. Non Performing Asset is considered as one of the best indicator of financial health of
financial institutions. COVID-19 is an infectious disease caused by the SARS-CoV-2 virus.


Research Scholar, School of Studies in Management, Jiwaji University,Gwalior, M.P., India.
**
Professor and Head, School of Commerce and Business Studies, Jiwaji University, Gwalior, M.P., India.
Yasmeen Khan & K.S. Thakur: A Critical Study on Non Performing Assets of Microfinance Institutions in.... 67
At the aggregate level, the percentage of NPAs to loans outstanding in respect of STCBs
reduced to 4.5 per cent as on 31 March 2016, as against 5 per cent as on 31 March 2015. Region-wise
analysis showed that the NPA levels in percentage terms of the STCBs in the eastern, north eastern and
western regions were higher than the all-India level. As on 30 June 2016, the recovery of STCBs stood at
91.7 per cent. At the aggregate level, the percentage of NPAs to loan outstanding in respect of DCCBs
decreased from 9.9per cent as on 31 March 2015 to 9.4 per cent as on 31 March 2016. As in the case of
STCBs, the NPA levels in percentage terms of the DCCBs in the eastern, north-eastern and western
regions were higher than the all-India level. At the aggregate level, the percentage of NPAs to loan
outstanding in respect of PCARDBs as on 31 March 2016 was 37.03 per cent, which was higher than
that of the previous year (36.20 per cent). However, the total NPA level declined from R5, 361crore to
R4, 651 crore. This is because of non-functioning of PCARDBs in the central and western regions. As on
30 June 2015, the recovery of PCARDBs stood at 55.47 per cent. The gross NPA of all RRBs increased
from 6.15 per cent, as on 31 March 2015 to 6.80 per cent as on 31 March 2016. While 32 RRBs reported
Gross NPAs less than 5 per cent as on 31 March 2015, 26 RRBs had reported Gross NPA less than 5
per cent as on 31 March 2016.At the aggregate level, the percentage of NPAs to loans outstanding in
st st
respect of STCBs, reduced to 4.08 percent as on 31 March 2017 as against 4.50 percent as on 31
st
March 2016.The Average gross NPAs for DCCBs across India increased from 9.4 percent as on 31
st
March 2016 to 10.5 percent as on 31 March 2017.Rising of NPAs in SHG loans, from a 2.1 percent
in2008 to 7.4 percent in 2015 was a concern in the sector. Thereafter, the NPAs started declining from
7.4 percent (in 2015-16) to 6.12 percent in 2017-18which further declined to 5.19 percent in 2018-19.
There has been decline in absolute NPAs implying improvement in quality of loan assets in the sector. All
other Regions had the NPA level higher than the all India level of 5.19 per cent except the Eastern
Region. Central Region had the highest NPA level with 30.6 percent and it had increased by 5.9
percentage points during 2018-19. Eastern Region had successfully reduced the NPA level during the
year by 1.98 percentage points. The overall NPA position in Eastern Region declined to 5.19 per cent in
2018-19 from 7.17per cent in 2017-18. Fall in the Gross NPA amount was also observed in other states
like Rajasthan, Punjab, Nagaland, and Jharkhand. This is indicative of better recovery of bank loans to
SHGs in these states.
Further, because of the COVID-19 Pandemic, the growth prospects has further declined in the
last quarter of fiscal 2019-20.The estimate for the growth rate of the economy in the FY 2020-21 has
been lowered from 5.8% (pre COVID-19 impact estimate by IMF) to the range of 0.8 % Fitch) to 2.5%
(Moodys). Gross NPAs as percentage of Gross Loans Outstanding at aggregate level increased from
11.15% as on 31 March 2018 to 11.85% as on 31 March 2019. Number of DCCBs having GNPA (%)
above 10% increased from 157 as on 31 March 2018 to 162 as on 31 March 2019. Asset quality
measured in terms of GNPA (%) showed improvement in the Southern and Eastern regions and
deteriorated in the Central, Western and Northern regions when compared to the previous year. SHG-
BLP as on 31 March 2020 shown NPA level was 4.92%, decreased from 5.19% as on 31 March 2019.
Asset quality has improved marginally during the year with GNPAs as percentage of gross loans
outstanding reducing from 4.72% as on 31 March 2018 to 4.32% as on 31 March 2019. There has been
variation among the StCBs, with 6 StCBs (of which, 5 are in two-tier structure)reporting GNPA higher
than 10% of gross loans outstanding and 10 StCBs reporting GNPA between 5%-10% and 17 StCBs
reporting GNPA less than 5%.NPA (%) was the highest in the North-Eastern Region and the lowest in the
Northern Region. The absolute level of NPAs has also declined from` 5321.70 crore in 2019-20 to `
4889.21 crore in 2020-21, which is a welcome change from the last year. This trend is also seen in
Regions except North Eastern and Eastern Region.
th
India is a fast growing economy. In 2019, it had become the5 largest economy (World
Economic Forum), with a nominal GDP of US $2.94 trillion. The SHG-BLP Program has indeed become
an example of success of a microfinance program globally with an outreach to 13.87 Crore families,
providing social, economic and financial empowerment to the rural poor, especially women. During 2020-
21, banks have reported an addition of 9.8 lakh savings linked SHGs at all India level registering a growth
of 9.5 per cent compared to 2.3 in 2019-20.Region-wise comparative data reveals that in terms of
number of SHGs savings linked with banks, positive growth was registered across all regions during
2020-21. Among the regions, Central region registered the highest growth of 19%, whereas the Western
Region registered the lowest growth of 5%. Six States/UTs viz., Uttarakhand, Nagaland, Chandigarh,
New Delhi, Karnataka, Daman & Diu, registered a negative growth. As many as 19 States/UTs viz.,
Chhattisgarh, Madhya Pradesh, Andaman & Nicobar, Bihar, Odisha, Arunachal Pradesh, Assam,
68 Inspira- Journal of Modern Management & Entrepreneurship (JMME), Volume 12, No. 01, Jan.-March. 2022
Manipur, Meghalaya, Mizoram, Tripura, Haryana, Jammu & Kashmir, Punjab, Andhra Pradesh,
Lakshadweep, Puducherry, Telangana and Gujarat registered growth rates higher than the All India
average. The decline in savings accounts of SHGs in the six States is mainly due to data sanitization,
closure of dormant accounts and reporting errors etc. In terms of savings amount, the Northern Region
had the highest growth of 193%,followed by the Western Region (85%), North Eastern Region (73%),
Southern Region (45%),Central Region (24%) and the lowest growth of 17% was registered by the
Eastern Region. Savings is a key leverage factor while accessing bank loan or loan from any Financial
Institution. The savings outstanding of SHGs as on 31 March 2021 increased from ` 26152.05 crore to an
all-time high of ` 37477.61 crore, registering a significant growth of 43% over the year 2019-20, with all
regions registering a positive growth.
Literature Review
Singh, Shanu& Singh, C. (2017)stated that there is no growth in the positive trend of performing
assets in the Microfinance Institutions working in the state of Bihar. Therefore there is downward growth
in the nonperforming assets in the MFIs in Bihar. Bhatt, Viral & Parekh, Bhoomi (2019) in their study
concluded that there is a correlation between combined causes or situations that lead to arrears/defaults
in microfinance loan on overall reasons behind NPAs in microfinance loan and also the combined
situations do have impact on reason of NPA.
Shrestha, Prakash (2020) concluded that because of COVID-19, MFIs have also been affected
in many ways. Lending to borrowers has broadly declined due to lack of demand for loans. Gangadhar
Pandey, & Sateesh Kumar Ojha (2020)concluded that the Measure social distancing and conduct regular
banking needs enabling environment which require extensive awareness of using technology at rural
where no internet or smart phone user has so this will stop flow of funds. Similarly, MFIs products are still
similar as earlier and not yet redesign innovative concept to deal with customer. With these all the
researcher can have concluded that MFIs are able to mitigate regulation demand but won’t able to solve
rural eco-system if similar concept, product and program offer even during COVID-19 and at post
COVID-19 phase. Mani, Abilash. (2021) stated that RBI has concentrated on Commercial Banks and
declared several steps to limit macro effect of Pandemic situation by increasing period of advances, part
rebate of interest rate as well as adopted some measures towards digitization.
Research Gap
The rationale of present research work lies in the fact that in this present scenario the
importance of Microfinance is increasing day-by-day which too shows a great impact on our Indian
economy. One aspect is to analyze the growth of Microfinance during pre and post COVID-19 and
another aspect is to analyze the financial health of financial institutions by studying the Non Performing
Assets of Microfinance Institutions during pre and post COVID-19.
Need of the Study
There is a need to provide Microfinance facilities to cater to India’s large rural population. As we
know that the Non Performing Assets plays a significant role in context of financial health of financial
institutions that’s why it must be taken care of by the Microfinance Institutions.
Objectives of the Study
 To find out the various factors for the growth of Microfinance during Pre and Post COVID-19.
 To examine the various reasons for effect on Non Performing Assets of Microfinance Institution
during Pre and Post COVID-19.
 To assess the critical analysis on Non Performing Assets of Microfinance Institution and
examine the impact of Pre and Post COVID-19.
 To suggest various parameters for better control on Non Performing Assets of Microfinance
Institutions.
Research Methodology
The purpose of this research paper was to examine the various reasons and impact on Non
Performing Assets of Microfinance Institution during Pre and Post COVID-19.Thus this study is
descriptive as well as exploratory in nature. This research paper has been done with special reference to
one NBFC-MFI Bandhan Financial Services Limited. Secondary data has been collected from various
reports of Bandhan Financial Services Limited, MFIs, NABARD,SIDBI, books, journals etc. For analysis
purpose mean and trend analysis has been done.
Yasmeen Khan & K.S. Thakur: A Critical Study on Non Performing Assets of Microfinance Institutions in.... 69
Data Analysis and Interpretation
Table 1: NPAs of Bandhan Financial Services Limited (During the year 2016-17 to 2020-21)
NPAs 2016-17 2017-18 2018-19 2019-20 2020-21
(Rs. In (Rs. In cr.) (Rs. In (Rs. In (Rs. In
cr.) cr.) cr.) cr.)
Net NPAs to Net Advances (%)
Movement of 0.36 0.58 0.58 0.58 3.51
Gross NPAs 86.26 373.14 819.56 992.78 5757.76
Movement of Net NPAs 61.17 172.90 228.32 389.40 2861.03
Movement of Provision for NPAs 25.09 200.24 591.24 603.38 2896.73
Source: Annual Reports of Bandhan Financial Services Limited

Figure 1: NPAs of Bandhan Financial Services Limited

Figure 2: Net NPAs to Net Advances (%)

70 Inspira- Journal of Modern Management & Entrepreneurship (JMME), Volume 12, No. 01, Jan.-March. 2022

Figure 3: Movement of Gross NPAs

Figure 4: Movement of Net NPAs

Figure 5: Movement of Provision for NPAs

Yasmeen Khan & K.S. Thakur: A Critical Study on Non Performing Assets of Microfinance Institutions in.... 71
In the Year 2016-17 Net NPAs to Net Advances was 0.36% as compared to 2017-2018 which
was 0.58% that shows an increase of 0.22 %. In the Year 2019-20 the figure of Net NPAs to Net
Advances was 0.58% which has been increased by 2.93% in the year 2020-21 as illustrated from table 1
and figure 1, figure 2. The Movement of Gross NPAs in the year 2017-18 was 373.14 crore which show
an increase of 446.42 crore in the year 2018-19.In the year 2019-20 the Gross NPA was 992.78 crore
compared to 2020-21 which was 5757.76 crore as shown in table 1, figure 1 and figure 3. The Movement
of Net NPAs in the year 2016-17 was 61.17 crore and in the year 2017-18 it was172.90 crore whereas in
the year 2018-19 it was 228.32 crore and 389.40 crore in the year 2019-20 as is evident from table 1,
figure 1 and figure 4, whereas the Movement of Provision for NPAs is visible in table 1, figure 1 and
figure 5, i.e. in the year 2019-20 it was 603.38 crore and in the year 2020-21 it was 2896.73 crore.
Table 2: Total and Average of Gross, Net and Provision for NPAs
Particulars Total of NPAs (5 Years) Average of NPAs (5 Years)
Gross NPAs 8029.5 1605.9
Net NPAs 3712.82 742.564
Provision for NPAs 4316.68 863.336

Figure 6: Total of NPAs

Figure 7: Average of NPAs

The Gross NPAs of five years in aggregate were Rs. 8029.5 crore. Whereas the Net NPAs of
five years in aggregate were Rs. 3712.82 crore and provision for NPAs of five years were Rs. 4316.68
crore as evident from table 2 and figure 6. The Average Gross NPAs of five years were Rs. 1605.9 crore
and the Average Net NPAs of five years were Rs. 742.564 crore and Average Provision for NPAs of five
years were Rs. 863.336 crore as illustrated through table 2 and figure 7.
72 Inspira- Journal of Modern Management & Entrepreneurship (JMME), Volume 12, No. 01, Jan.-March. 2022
Limitations of the Study
 The study was limited to only Bandhan Financial Services Limited MFI working in India. The
Scope of Microfinance is wider and this study was limited to only Institutions.
 Time Limit was also considered as one of the limitation.
Findings
 After analyzing the data this has been found that Stricter localized lockdowns had most likely hit
loan collections for NBFC-MFI and could increase Non Performing Assets (NPAs).
 MFI remain the most vulnerable segments, and thus banks with relatively higher exposure to
these segments like Bandhan Bank, Ujjivan small finance bank could be at relatively higher
Asset Quality Risk.
 Another reason for increase in NPAs was increase in Bad debts again.
Recommendations
 The MFIS should thoroughly inspect the background of loan seekers to whom they are giving
loans to in this way one can reduce NPAs.
 Another way to reduce NPAs is Real-time reporting should be there to avoid any kind of
hindrance in efficiency and speed on collections. It is essential to have clear visibility at each
stage of the cycle.
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