MFIs could close FY22 with 12-15% loan growth as defaults decline: report
As the overall collection efficiency of microfinance lenders improves, the industry will likely end the current fiscal year with asset growth of 12-15%, up from 9% in 2020-2021, according to a report.
The second wave of the pandemic impacted microfinance business volume in the first half of the year due to poor collections and the resulting moderation of new loans. The industry closed the first six months of the current fiscal year with asset growth of just 5%, rating agency ICRA said in a report on Wednesday.
He added that from the second half of the year, economic activities returned to a near-normal level, leading to increased demand for credit. “This should help the industry expand the asset base by 12-15%, down from 9% in FY 21.”
However, the report does not expect profitability to improve over the course of the year given the high cost of credit that will weigh on the bottom line (profit), reducing the larger impact on income. resulting from increased loan sales.
Sachin Sachdeva, vice president of the agency, said measures of asset quality weakened sharply in the first half of the year due to localized lockdowns imposed by various states due to the second wave affecting borrowers’ cash flows. , and the resulting drop in the efficiency of lender collection.
However, with the gradual reopening of the economy, microfinance activities resumed from the second quarter, as did collections which rebounded from the March 2021 level, the report says without revealing the extent of the decline in S1FY22. or how she was in March 2021.
Still, despite better collections in the second quarter, late payments have increased significantly, with the 90+ days late dropping to 6.2% in September 2021 from 5.3% in March 2021, he said.
Defaults increased dramatically in May-June 2021, when the second wave peaked and almost the entire country was under almost total foreclosure. In terms of gradual restructuring and some recovery in collection efficiency, reported defaults decreased in September, although they remain high from March 2021 level.
In addition, the sector had around 10% of its assets under management restructured as of September 2021, although the performance of these loans remains controllable.
Despite the expected improvement in activity in the second half of the year, persistent pressures on asset quality will keep the cost of credit high and, consequently, moderate profitability during FY22, although the sector is expected to remain high. experience higher loan growth of around 12 to 15 percent for the full year, he added.
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