Karnataka’s microfinance collection efficiency plunges, CreditAccess Grameen most exposed, says Goldman Sachs

Shares of the microfinance player have crashed over 40 percent on the bourses over the past 12 months.

International brokerage Goldman Sachs' channel checks suggest that the collection efficiency for lenders in the state of Karnataka has dropped to 87-95% in February.

This fall comes following the implementation of an ordinance banning unregulated activities in the microfinance space. According to the brokerage, collection efficiency for lenders has sharply dropped due to liquidity squeeze and potential moral hazard. This, in turn, has led to some collateral damage for formal players. Further, microfinance disbursements are also slowing down due to incremental stress.

Out of all MFI players, the brokerage expects CreditAccess Grameen to be most exposed, with pre- tax profit impacted in the range of 15%-37% for incremental loss rates of 2-5% on Karnataka MFI portfolio.

This is because the state is overrepresented in CreditAccess Grameen's loan book, making up 31 percent of the book as of 3QFY25. The MFI player also holds the highest market share in the state at 19 percent.

At 10.30 am, shares of CreditAccess Grameen were quoting Rs 866.35 on the NSE, down 3% from the previous session's closing price. Over the past 12 months, shares of the microfinance player have crashed over 40 percent on the bourses.

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For the other listed players under the brokerage's coverage with significant

Karnataka MFI exposure, there will be a limited impact of around 1-3% of pre-tax profit.

For L&T Finance, where Karnataka makes up ~3% of loan book; the company carries Rs 900 crore or <1% of loan book in macro- rural provisioning as of 3QFY25. For IndusInd Bank, Bandhan Bank, and AU Small Finance Bank, Karnataka is less than one percent of their loan book.

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