**Microfinance Defaults: Kotak and RBL Banks Report Higher Delinquencies**
In a recent development, private banks Kotak Bank and RBL Bank have faced the brunt of defaults in the microfinance sector. Both banks, which unveiled their financial results over the weekend, disclosed increased defaults in the microfinance segment. This news has sent shockwaves through the financial industry, raising concerns about the stability of the microfinance market.
**Kotak Bank’s Financial Performance**
Kotak Bank’s consolidated net profit for the quarter ending December 2024 saw a 10% rise to Rs 4,701 crore, up from Rs 4,265 crore in the same period last year. Additionally, the bank’s standalone net profit also increased by 10% to Rs 3,305 crore. However, the bank’s microfinance arm BSS reported a significant loss of Rs 50 crore for the quarter, compared to a profit of Rs 104 crore in the previous year’s corresponding quarter.
**RBL Bank’s Struggles**
On the other hand, RBL Bank reported an alarming 86% decrease in net profit, plummeting to Rs 33 crore. The bank’s provisions for the quarter surged twofold to Rs 1,180 crore, with an additional Rs 414 crore allocated to joint liability group loans (JLG). JLG loans, which are micro advances granted to borrowers as a group, have posed challenges for RBL Bank’s financial stability.
**Expert Insights and Industry Outlook**
According to Kotak Bank’s Managing Director and CEO Ashok Vaswani, the asset quality in all personal loans remains stable, except in the microfinance sector, where there is a concerning industry-wide issue. Vaswani noted, “As far as microfinance is concerned, we are continuing to see an increase in delinquencies. The rate of deterioration has slowed down, which provides some reassurance that in the upcoming quarters, this trend will stabilize and improve.”
**Industry-Wide Impact and Response**
The distress in the microfinance sector is not limited to Kotak and RBL Banks. Last month, IndusInd Bank offloaded Rs 1,573 crore worth of non-performing microfinance retail loans, reflecting the escalating stress in the industry. This trend underscores the urgent need for a comprehensive strategy to address the challenges faced by banks operating in the microfinance space.
As we navigate these turbulent financial waters, it is crucial for stakeholders to closely monitor the evolving situation and adapt their risk management practices accordingly. The resilience and adaptability of financial institutions will be tested in the coming months as they strive to mitigate the impact of rising defaults in the microfinance sector.
