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Improving collections, growth revival provide solace to MFIs: ICRA
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SME Times News Bureau | 15 Apr, 2021
Improving collection efficiency and growth pick-up in H2FY21 is expected
to help the MFI industry's long term prospects, ratings agency ICRA
said on Thursday.
However, incremental covid-19 related disruptions remains a concern.
"The
overall long-term growth outlook for domestic microfinance industry,
including microfinance institutions and micro finance focused small
finance banks (SFB)s, remains robust, even though the near-term outlook
is clouded given the Covid-19 induced disruptions," ICRA said.
"The
onset of lockdown restriction and the moratorium on loan repayments
extended to borrowers had led to the industry recording negligible
collections in April 2020, but the situation improved gradually over the
subsequent months with easing of restrictions and pick-up in economic
activity."
As a result, the agency pointed that collection efficiency improved to 102 per cent in December 2020.
"The
disbursements also started picking up from Q2 FY2021 onwards, which is
expected to help the industry achieve growth of 9-11 per cent in its
assets under management (AUM) in FY2021."
Consequently, the trend provided some respite to the industry, which has been reeling under the stress induced by Covid-19.
In
an ICRA's study sample of 20 MFIs indicated that the liquidity flow to
the sector has improved over the last few months and overall Rs 22,900
crore were raised in 9MFY21.
It further said that industry
witnessed reduction in its overall cost of funds during this period,
however, despite this; the industry is expected to witness reduction in
net interest margins (NIMs), owing to reduced interest income with
portfolio growth happening only towards H2FY21 and negative carry
because of excess on-book liquidity.
In addition, increased
recovery efforts are expected to negate the impact of the expense
optimisation efforts to some extent and put pressure on the operating
profitability.
"ICRA estimates asset quality pressures for the
MFI industry to continue in the near term and the same may get
accentuated with the recent increase in Covid-19 infections and
localised restrictions or lockdowns," said Sachin Sachdeva, Vice
President and Sector Head, Financial Sector Ratings, ICRA.
"Nevertheless,
improving collection efficiency, good on-balance sheet liquidity and
capitalisation should help most entities to withstand the stress."
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