Under Pressure, But Fighting Back: Manappuram Plots NPA Turnaround in Microfinance Arm

Updated: May 09, 2025 18:36

Image Source: Manappuram

Manappuram Finance Ltd. is pointing towards a recovery in its microfinance business, Asirvad Microfinance, with senior management being optimistic that gross NPAs will fall in the next quarters. The optimism comes after a phase of high stress in the microfinance book, caused by industry-wide issues and operational challenges.

Key Highlights:

Gross NPA Decline Anticipated: Following gross NPAs in the microfinance business jumping to almost 13% by the end of 2024, Manappuram's management is now projecting a consistent decline. Executives credit this optimism to exhaustive remedial steps, such as tighter underwriting, enhanced borrower discipline, and a renewed emphasis on group meetings and collection efficiency.
Strategic Portfolio Realignment: The firm is currently de-risking its exposure to unsecured microfinance loans, with a view to taking the microfinance book below 15% of total AUM from its current level of 21%. The emphasis is on shifting towards secured lending, including mortgage-backed MSME and auto loans, in order to de-risk the portfolio and stabilize asset quality.
Operational Reforms: Asirvad Microfinance has tightened the credit appraisal norms and optimized disbursements, which management feels will bring back profitability and NPAs to pre-stress levels within the next two to three quarters.
Growth Prospects: Withstanding losses in the microfinance business in recent times, Manappuram plans to see 10-12% growth in Asirvad, powered by better risk management and sustained demand in the segment.
Industry Context: The microfinance industry has witnessed increasing default risks owing to overleveraging by borrowers and external shocks, but Manappuram's aggressive measures are geared towards managing this transition and returning to a normalized risk environment.

With a well-defined plan to manage risk and improve recoveries, Manappuram Finance is gearing its microfinance operations for a steady but long-term recovery in asset quality.

References: Manappuram Q3 FY25 Earnings Call, The Hindu Business Line, Economic Times, Manappuram Annual Report

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