Mumbai's Financial Giants Grapple with Microfinance Challenges

In the bustling financial hub of Mumbai, private banks Kotak and RBL are facing significant hurdles due to increasing defaults in the microfinance sector. Despite a general uptick in profits, the microfinance arms of these institutions are reporting losses, signaling a troubling trend within the industry.

Kotak Bank's consolidated net profit for the quarter ending December 2024 saw a 10% increase, reaching Rs 4,701 crore. However, its microfinance subsidiary, BSS, reported a loss of Rs 50 crore, a stark contrast to the Rs 104 crore profit in the same quarter the previous year.

RBL Bank's situation mirrors this downturn, with an 86% drop in net profit to Rs 33 crore. The bank's provisions surged twofold to Rs 1,180 crore, primarily due to an additional Rs 414 crore allocated for joint liability group (JLG) loans, a common microfinance product.

Ashok Vaswani, MD & CEO of Kotak Bank, commented on the stability of personal loans but highlighted the ongoing issue with microfinance delinquencies. He remains optimistic, predicting a plateau in the next two to three quarters.

The sector's stress was further evidenced by IndusInd Bank's recent sale of Rs 1,573 crore in non-performing microfinance retail loans. This move underscores the broader challenges facing the microfinance industry, as banks seek to navigate through these turbulent times.