Telangana farm loan waiver: Jharkhand, Maharashtra next? MFI shares take a beating today

Shares of micro finance institutions fell up to Rs 5 per cent today as the Telangana cabinet announced farm waiver of up to Rs 2 lakh for farmers, amounting o Rs 31,000 crore. Analysts noted that the Jharkhand government is also contemplating raising farm waiver from Rs 40,000 to Rs200,000. While micro finance lenders avoid direct agriculture exposure, negative perception for the sector could weigh over stock valuations, analysts said.

"Although the MFI exposure in Telangana (0.7 per cent of total outstanding) and Jharkhand (3 per cent of total outstanding) is minuscule, we remain watchful of any probable agitation in the state of Maharashtra which is also scheduled for legislative elections in 2024. Maharashtra holds 8-10 per cent of MFI AUM as on March 2024," InCred Equities said.

Ujjivan Small Finance Bank plunged 5.07 per cent to Rs 45.91. CreditAccess Grameen Ltd tanked 4.33 per cent to Rs 1,407.25. Utkarsh Small Finance Bank shares fell 1.53 per cent to Rs 52.27. Spandana Sphoorty Financial Ltd declined 2.56 per cent to Rs 732.20. Suryoday Small Finance Bank Ltd slipped 3.03 per cent to Rs 195.20.

InCred Equities said Telangana's total MFI loans outstanding – Rs 2,920 crore was 0.7 per cent of outstanding MFI loans. Of this NBFC-MFIs has an exposure of Rs 523 crore. Telangana showed the highest AUえーゆーM growth at 401 per cent YoY though at a small base.

Telangana had 10 MFIs in FY24 against one in FY23. Fusion Micro Finance had 22 branches, Equitas SFB 20 and CreditAccess 13.

In the case of Jharkhand, total MFI loans outstanding was Rs 13,000 crore or 3 per cent of outstanding MFI loans. Of this, NBFC-MFIs has an exposure of Rs 4,851 crore. Jharkhand had 26 MFIs in FY24.

Utkarsh SFB had 79 branches, Fusion Micro Finance had 55 branchs, CreditAccess 45, Satin Creditcare Network 39, Muthoot Microfin 26, Ujjivan SFB 21 and ESAF SFB 15.

"The Jharkhand government’s loan waiver scheme applies to crop loans for farmers residing in the state; it does not cover microfinance loans. While the scheme came into force in FY2021, we have not observed any noticeable effect on microfinance delinquency levels in the state, which allays concerns about incremental deterioration in credit culture. We understand that such farm loan waiver schemes have been announced by a few other state governments in the past, but they generally do not cover microfinance loans," Kotak Institutional Equities said in a recent note.