Latest news with #MFIs
Hindustan Times
4 days ago
- Business
- Hindustan Times
Climate ‘green swan' events: Financial sector braces for shocks
India's financial system faces a growing threat from green swan events—climate-driven crises marked by unpredictable, cascading impacts that could destabilise markets and worsen inequality. Unlike rare black swan events, green swans are inevitable due to the climate crisis, combining physical risks (floods, droughts) and transition risks (policy shifts, tech disruptions). With over $70 billion in climate-related losses since 2019 and 2,000+ fatalities, India ranks among the most vulnerable nations globally. Green Earth (Shutterstock) Green swans represent systemic climate threats that defy conventional risk modelling. Traditional risk assessment models that extrapolate from historical trends are insufficient for fully appreciating the systemic risks posed by the climate crisis. They involve non-linear, irreversible environmental shifts—like melting glaciers, draughts, or collapsing ecosystems—that trigger financial chaos. The Reserve Bank of India (RBI) warns these events could recur with rising intensity, overwhelming traditional insurance and hedging tools. For India, where 45% of the workforce relies on climate-sensitive agriculture, the stakes are existential. The interconnected nature of these risks means that localized climate disasters can cascade through the entire financial system, affecting institutions and markets far beyond the initially impacted areas. Also, unlike health shocks, climate disks are here to stay. While health crises like Covid-19 caused acute, time-bound disruptions, green swans pose perpetual threats with irreversible tipping points. For example, coastal flooding could permanently displace millions, unlike pandemic recovery cycles. Traditional risk assessment models that extrapolate from historical trends are insufficient for fully appreciating the systemic risks posed by the climate crisis. The RBI is rolling out phased guidelines to address climate risks, including green deposit frameworks, climate disclosure rules, and stress-testing protocols. Specifically, in the context of financial inclusion, banks and microfinance institutions (MFIs) face dual pressures where cyclones and floods destroy collateral (homes, livestock), spike loan defaults, and disrupt operations and policy transition risks where sudden policy changes (e.g., coal phaseouts) could strand assets in carbon-intensive sectors. Microfinance, a $70 billion industry serving 60 million low-income borrowers, is especially exposed. Climate disasters threaten 30-40% of MFI portfolios tied to agriculture and livestock. Women, who form 95% of microfinance clients, face heightened risks of income loss and displacement. Having made some strides in financial inclusion, green swans could reverse those gains. MFIs report repayment rates dropping to 60% post-disasters. Given that these events could reshape finance, particularly for marginalised communities, it would be useful to seek lessons from Bangladesh's experience with similar climate-related challenges in financial inclusion. Bangladesh, which shares many climate vulnerabilities with India, has implemented several innovative approaches to address the financial implications of green swan events. A comparable context is Bangladesh's 1998 floods, where the country's financial sector had to deal with smallholder farmers and microfinance borrowers losing livestock and crops, their primary loan security. Through Green Refinancing, Bangladesh Bank provides low-cost loans for solar energy and waste management, supporting 20 million people through its Solar Home System programme. Grameen Bank's experience with green swan events is pioneering. It transitioned its group-based lending and emergency savings accounts to buffer climate shocks. During floods, repayment flexibility and asset diversification (e.g., shifting from crops to poultry) helped sustain its high recovery rates. A key lesson was that post-disaster loan waivers eroded repayment discipline in Bangladesh. Instead, staggered repayments and climate-resilient livelihood training proved more effective. One of the aspects that the Indian financial sector must prioritize are climate stress tests, which mandate banks to simulate monsoon failures or renewable energy transitions. Green bonds for financial inclusion can channelise funds into affordable flood-resistant housing or drought-tolerant crops. Green swan events represent a profound challenge for India's financial system, particularly in terms of maintaining inclusive financial services for vulnerable populations in the face of increasing climate risks. For India's 800 million people living on under $6 daily, balancing growth with climate resilience isn't optional—it's survival. Bangladesh's mix of regulatory innovation and community-centric finance provides a blueprint, but scaling solutions demands urgent public-private collaboration. As India continues to develop its approach to green swan events, coordination between financial regulators, government agencies, financial institutions, and civil society will be essential to ensure that vulnerable populations are not left behind in the transition to a more climate-resilient financial system. In the age of green swans, preparedness is the only hedge against the unpredictable. This article is authored by Rajalaxmi Kamath, professor, Public Policy, IIM Bangalore.
Hans India
6 days ago
- Business
- Hans India
India's retail asset securitisation rises Rs 52,000 cr in Q1 FY26
New Delhi: The retail asset securitisation market in India has shown steady growth in the first quarter (Q1) of FY26, with a total transaction volume of Rs52,000 crore, a new report said on Wednesday. This includes both pass-through certificate (PTC) issuances and direct assignment (DA) transactions, according to CareEdge Ratings report. The volume represents a 6 per cent growth over the same period previous year. Despite this, the market's stability is a positive sign, driven by strong demand for credit, confidence from investors, and the strategic efforts of originators to diversify their funding sources. One of the most significant milestones in Q1 FY26 was the completion of India's first residential mortgage-backed securitisation (RMBS) deal, carried out by RMBS Development Company Limited (RDCL). This deal was also the first securitisation transaction to be executed on the Electronic Book Provider (EBP) platform, which marks a new chapter in India's securitisation market. This transaction could act as a catalyst for more investors to enter the RMBS sector, potentially boosting innovation and participation in mortgage-backed securities. The move is expected to create more long-term funding opportunities and allow for better risk transfer. Looking at the transaction composition in Q1 FY26, there has been a noticeable shift. PTC transactions now make up 56 per cent of the total volume, which marks a significant change from previous periods when direct assignment (DA) transactions were more dominant. The increase in PTCs likely reflects changing preferences among investors, regulatory factors, and a growing desire for more standardised and tradable financial products. This shift also suggests that originators are looking to attract a broader investor base. Among the PTC issuances, asset-backed securitisation (ABS) products were a major contributor, accounting for around 75 per cent of the total volume. Mortgage-backed securitisation (MBS), on the other hand, remained steady at 10 per cent. A key highlight in Q1 FY26 was the rise in PTC issuances from Microfinance Institutions (MFIs). MFIs contributed 15 per cent of the total PTC volumes, a significant increase from 8 per cent in Q1 FY25. This growth reflects greater stability in asset quality within the microfinance sector, and suggests that investor confidence in this space is on the rise. In the ABS category, vehicle loan financing continued to be a major player, contributing over Rs 14,600 crore, or 51 per cent of total PTC issuances in Q1 FY26.
Hans India
7 days ago
- Business
- Hans India
India's retail asset securitisation market sees 6 pc growth in Q1 FY26
New Delhi: The retail asset securitisation market in India has shown steady growth in the first quarter (Q1) of FY26, with a total transaction volume of Rs 52,000 crore, a new report said on Wednesday. This includes both pass-through certificate (PTC) issuances and direct assignment (DA) transactions, according to CareEdge Ratings report. The volume represents a 6 per cent growth over the same period previous year. Despite this, the market's stability is a positive sign, driven by strong demand for credit, confidence from investors, and the strategic efforts of originators to diversify their funding sources. One of the most significant milestones in Q1 FY26 was the completion of India's first residential mortgage-backed securitisation (RMBS) deal, carried out by RMBS Development Company Limited (RDCL). This deal was also the first securitisation transaction to be executed on the Electronic Book Provider (EBP) platform, which marks a new chapter in India's securitisation market. This transaction could act as a catalyst for more investors to enter the RMBS sector, potentially boosting innovation and participation in mortgage-backed securities. The move is expected to create more long-term funding opportunities and allow for better risk transfer. Looking at the transaction composition in Q1 FY26, there has been a noticeable shift. PTC transactions now make up 56 per cent of the total volume, which marks a significant change from previous periods when direct assignment (DA) transactions were more dominant. The increase in PTCs likely reflects changing preferences among investors, regulatory factors, and a growing desire for more standardised and tradable financial products. This shift also suggests that originators are looking to attract a broader investor base. Among the PTC issuances, asset-backed securitisation (ABS) products were a major contributor, accounting for around 75 per cent of the total volume. Mortgage-backed securitisation (MBS), on the other hand, remained steady at 10 per cent. A key highlight in Q1 FY26 was the rise in PTC issuances from Microfinance Institutions (MFIs). MFIs contributed 15 per cent of the total PTC volumes, a significant increase from 8 per cent in Q1 FY25. This growth reflects greater stability in asset quality within the microfinance sector, and suggests that investor confidence in this space is on the rise. In the ABS category, vehicle loan financing continued to be a major player, contributing over Rs 14,600 crore, or 51 per cent of total PTC issuances in Q1 FY26. This includes loans backed by a variety of vehicles such as commercial trucks, passenger cars, two-wheelers, and construction equipment, the report said. However, the share of vehicle loans has decreased compared to previous quarters, as other asset classes like unsecured personal loans, business loans, and gold loans gained popularity. Unsecured loans alone accounted for 15 per cent of total PTC issuances -- indicating a growing interest from investors in these alternative retail credit segments. In the DA segment, mortgage-backed transactions continued to dominate, making up 67 per cent of the total DA volumes in FY25. Asset-backed DA transactions accounted for 26 per cent, the report stated.
Economic Times
08-07-2025
- Business
- Economic Times
Time for NBFC stocks to shine again? Policy support, repo rate cuts to benefit these 4 banking stocks
iStock NBFC stocks are expected to perform well in the upcoming quarter, bolstered by RBI rate cut and policy support for NBFC-MFIs Non-banking finance companies (NBFCs) have faced multiple challenges over the past few quarters amid delinquencies in unsecured loans, tight liquidity, and rigorous scrutiny by the Reserve Bank of India (RBI). However, their performance is expected to improve after cuts in interest rates and phased reduction in the cash reserve ratio (CRR) that will lead to an increase in liquidity and boost credit growth. The relaxation of regulations for NBFCs focused on gold loans and microfinance institutions (MFIs) will also help. Performance concerns were reflected in the share prices of NBFC companies in the first five months of 2025. The group of 104 listed companies in the financial services and consumer finance space, with a market cap of more than Rs.100 crore, delivered an equal weighted average return of -4.5% between 1 January and 31 May 2025. In comparison, the Nifty 500 equal-weighted index delivered -1.5% during the same period. Policy support The repo rate has been cut by 1 percentage point this year—25 basis points each in February and April, and 50 basis points in June. The CRR is being lowered by 100 basis points in four steps between September and November, a move that will lead to an infusion of an estimated Rs.2.5 lakh crore liquidity into the banking system. This, in turn, is expected to boost the net interest margins (NIMs) of increased liquidity and lower rates will support NIMs by reducing the cost of funds (CoF). The NIM is the difference between the interest income generated from lending activities and that paid on borrowed funds.'While the policy action is positive for the entire NBFC space, the players with high fixed rate assets (vehicle loans, loans against property) stand to benefit the most,' stated a recent ICICI Securities report. It expects the CoF to improve by 20-40 basis points in 2025-26 for most relaxation on new gold loans will be effective from April 2026. The loan-to-value (LTV) ceiling is being raised from 75% to 85% for loans with ticket sizes of less than Rs.2.5 lakh. This means that the gold loan focused NBFCs can lend more for every Rs.100 worth of gold. This will make the borrowings attractive and support the loan book the second key relaxation, the central bank dropped the qualifying assets threshold from 85% to 60% for NBFC-MFIs. This is the minimum amount of eligible microfinance loans that NBFC-MFIs must hold on their books, allowing them to diversify into more profitable segments, such as affordable housing or consumer finance.'With the qualifying asset threshold lowered, MFIs now have the flexibility to diversify their loan books, moving beyond traditional group lending to slightly larger ticket sizes. This will help stabilise the earnings across credit cycles,' said Harshal Dasani, Business Head, INVasset, Emkay report has stated that the NBFCs are set for risk-calibrated, profitable growth, aided by the reduction in cost of funding and easing of stress in some segments. Though the report expects a lacklustre performance in the June quarter, meaningful gains are expected from the second half of the current financial year and in 2026-27. Repo rate cuts spell bonanza for NBFC stocks Lower cost of funds will improve NIMs. The sentiment for the NBFC sector has improved since the policy measures were announced on 6 June. The group of 104 companies has generated an equal-weighted average return of 3.6% between 5 June and 1 July, compared with the Nifty 500 equal weighted index's 2.1% measures could result in a re-rating of NBFC stocks over the next three to six months, led by an improved margin outlook, stronger balance sheets and higher loan growth visibility, said Manish Goel, Founder and Managing Director, Equentis Wealth Advisory are the four NBFC stocks with broad analyst coverage and a significant buy rating. Stock price returns What do the analysts say? Aditya Birla Capital The firm reported a steady performance across business segments in the March 2025 quarter, with 6% year-on-year growth in net profit. It reported a strong loan growth in both NBFC lending and housing finance— 20% and 69% year-on-year, respectively. While the former was driven by SME and corporate loans, strong disbursements aided the latter. Health insurance, life insurance and asset management also performed well. The management expects margins to improve in the future, helped by a fall in the cost of funds and a gradual increase in the share of unsecured loans in its loan mix. The modifications in the strategy for customer selection in the unsecured segment will support disbursements in consumer and personal loans. A Motilal Oswal report estimated a consolidated return on equity (RoE) of 14% by 2026-27. Aptus Value Housing Finance The company reported a strong performance in the March quarter, with 26% and 25% growth in net profit and AUM, respectively, on a year-on-year basis. While volume growth supported the AUM, the assignment transaction of Rs.75 crore boosted the net profit. The company enjoys a strong capital adequacy ratio of 70%, which has helped it to report robust return ratios. Moreover, its steady cost-to-income ratio makes it a cost-efficient affordable housing finance lender. Strong asset quality, steady credit costs and likely revival in disbursements in 2025-26 are some of the key positives. Moreover, focus on increasing floating rate borrowings, to benefit from the ratecycle reversal, and a high share of fixed rate loans will improve spreads and profitability in the future. The management expects the AUM to reach Rs.25,000 crore by 2027-28, implying a 32% CAGR. An ICICI Securities report expects that the growth momentum will sustain due to the stringent credit monitoring, strong collection mechanism, focus on geographical diversification and controlled opex. PNB Housing Finance The NBFC reported a steady performance in the March quarter, with 25.3% year-on-year growth in net profit. An uptick in high-yielding segments, provision write-backs and efficient asset liability management supported the performance. To enhance growth, the company's management is focusing on affordable housing and emerging market segments. On the other hand, the company is slowing down disbursements in the prime segment due to the increased competition from large banks. Affordable housing and emerging market segments currently constitute 24% of the loan book and the management plans to scale up such segments to 40% by 2026-27. The increase in scale will impart efficiency gains by reducing opex and will lead to an improvement in return on assets (RoA). With 70% of borrowings on floating rate, the rate cut will prove favourable by lowering the borrowing costs. A recent Nirmal Bang report remains positive on the company due to its improved growth prospects, with expansion in emerging markets and affordable segments, along with the improving return ratios due to the likely NIMs expansion and benign credit costs. Shriram Finance It reported a subdued performance in the March quarter due to a spike in credit costs and contraction in NIMs. Tepid demand amid weak government capex and minor deterioration in asset quality weighed on its performance. Going forward, the margins are expected to improve, helped by an improved product mix, rate cut, and expectations of a higher government capex. Moreover, the asset quality is expected to stabilise in the second half of the current financial year. A recent Motilal Oswal report is bullish on Shriram Finance due to its market leadership, strategic diversification in high-growth, non-auto segments, potential for margin and operating efficiency improvements, attractive valuations and strong earnings visibility.
Business Upturn
24-06-2025
- Business
- Business Upturn
IndusInd Bank shares fall amid probe into Rs 6,000–7,000 crore microfinance loan irregularities; Report
By Aman Shukla Published on June 24, 2025, 10:46 IST IndusInd Bank shares declined in trade after fresh concerns surfaced regarding its microfinance loan portfolio. According to a Moneycontrol report, the Mumbai-based lender is currently investigating alleged irregularities involving ₹6,000–7,000 crore worth of loans. Sources quoted in the report said these were mostly small-ticket, unsecured loans that may have been misclassified as agricultural loans, though they were linked to microfinance institutions (MFIs). The loans were reportedly disbursed to prevent existing MFI loans from turning non-performing. While not exactly a case of loan rollovers, a banker familiar with the probe told Moneycontrol that the transactions resemble such practices. The outcome of the internal investigation could lead to further scrutiny and regulatory implications, adding pressure on the stock. Disclaimer: The information provided is for informational purposes only and should not be considered financial or investment advice. Stock market investments are subject to market risks. Always conduct your own research or consult a financial advisor before making investment decisions. Author or Business Upturn is not liable for any losses arising from the use of this information. Ahmedabad Plane Crash Aman Shukla is a post-graduate in mass communication . A media enthusiast who has a strong hold on communication ,content writing and copy writing. Aman is currently working as journalist at
