With 61 Percent of Loan Book Tied Up in High-Risk Microcredit, Bandhan Bank Feels the Heat of Coronavirus Lockdown

The nationwide lockdown to fight COVID-19 presents a major crisis for banks with high exposure to the microcredit segment. With many small businesses on the verge of shutting down, loan repayments may stop

Source: Money Control

In 2010, when the microfinance crisis broke out in the southern state of Andhra Pradesh, banks with high exposure to Micro Finance Institutions (MFIs) witnessed a devastating phase.

The extent of the crisis prompted banks to shut lending channels to microfinance companies temporarily. Bad loans were zooming. One of the private lenders, Yes Bank, had to even recall some of its loans given to certain MFI customers.

Now, a decade later, these problematic microloans may be returning to hurt banks as the economy feels the impact of the COVID-19 lockdown. The economic paralysis expected after the lockdown is hurting cash flows of low-income groups in the society, who are the main customers of MFIs. Their loan repayments to banks may stop.

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