MUMBAI: Microfinance institutions (MFIs) are seeing collections bounce back to March 2021 level, indicating an easing of stress that was seen during the second wave of the pandemic. However, the stress already in their books is likely to keep profitability under check for FY22.
“The disruptions caused by the second wave impacted the growth of the industry in H1FY22 as the movement of people was greatly hindered and entities focused on collections instead of disbursements. The pandemic-induced disruptions moderated the portfolio growth to around 5% (annualised) in H1FY22 as compared to growth of 9% in FY21. Nevertheless, favourable factors provide hope for better growth prospects in FY22 with an estimated growth rate of 12-15%,” said ICRA VP & sector head (financial ratings) Sachin Sachdeva.
Stress in MFI books rose sharply in H1FY22 because of the localised lockdowns, which impacted borrowers’ cash flows.
With the gradual opening of the economy, microfinance activities resumed in Q2FY22 and collections also bounced back to March 2021 level.
Despite improvement in collections, delinquencies rose with the 90+ days past due (dpd) at 6.2% as of September 30, 2021, compared to 5.3% as of March 31. The delinquencies had risen significantly in May-June. However, restructuring helped bring them down by September 30, by when the industry had around 10% of its loan book restructured.
What has also helped the MFIs are the various steps undertaken by the Reserve Bank of India (RBI) and the government, including liquidity-enhancement measures and the introduction of guarantee schemes for the stressed MFIs. “Notwithstanding the expected improvement in business during H2FY22, the persisting asset quality pressures would keep the credit costs elevated and consequently the profitability subdued in FY22,” said Sachdeva.
