Asset quality pressures for the micro finance industry to continue
The rapidly rising Covid-19 infections for the last few weeks have put the country’s critical healthcare infrastructure under severe strain, Sachin Sachdeva, Vice President and Sector Head, Financial Sector Ratings, ICRA, has cautioned.
“Several states and Union Territories (UTs) have either imposed lockdowns or have placed significant restrictions on people movement and gatherings to curb the spread of pandemic. This is creating disruptions in the economic activities and impacting the field operations of micro finance institutions (MFIs),” he has pointed out.
Consequently, the micro finance industry is witnessing a reduction in collections and the recovery seen in Q4 FY2021 is being challenged again. ICRA estimates a sequential drop of 8-10% in collections in April 2021 and the same may dip further if the infections continue rising and more restrictions are imposed across locations.”
The improvement in collection efficiency and pick-up in growth in assets under management (AUM) in H2 FY2021 helped the industry witness a marginal improvement in the overdue portfolio (0+ days past due (dpd)) to 16.7% as on 31 December 2020, which had earlier increased to 18.1% as on 30 September 2020 after the lifting of the moratorium.
The collections continued to improve in Q4 FY2021 and, as per interactions with various MFIs, ICRA estimates a reduction of 300-400 basis points in the 0+ dpd in Q4 FY2021. However, the improvement in the 90+ dpd is expected to be marginal, as it is challenging for marginal borrowers to repay multiple instalments.
Among major states as per portfolio size, Assam led the chart in terms of the 90+ dpd, which stood at ~20.3% as on 31 December 2020. Other major states namely Maharashtra, West Bengal, and Kerala had 90+ dpd of 7.8%, 6.1% and 6.1%, respectively, as on 31 December 2020 compared to Pan India average of 4.9%. Assam had already been reeling under collections stress and the pandemic aggravated the situation.
Other states had been under pressure owing to significant impact on their economic activities because of Covid-19-induced disruptions.
“ICRA estimates asset quality pressures for the microfinance industry to continue in the near term amid the rising Covid-19 infections and localised restrictions andlockdowns. Good on-balance sheet liquidity and sizeable provisions created in FY2021 provide cushion for absorbing further shocks,” he said.
“Nevertheless, the severity of the impact would depend on the time taken for the pandemic to subside.” #covid #health #economy #banking #investment /fiinews.com
