With the country’s microfinance industry taking a hit over the ongoing demonetisation process, rating agency India Ratings and Research (Ind-Ra) on Thursday said if money flow does not fully normalise by the fourth quarter of the current financial year, tier 1 capital of a few microfinance institutions (MFIs) could near the regulatory minimum levels.
“Ind-Ra believes demonetisation is likely to affect MFI borrowers and MFIs across the country, albeit temporarily. MFIs’ borrowers are expected to re-prioritise their expenses on account of cash flow mismatches. As a result, MFIs may experience high overdue. Moreover, demonetisation indicates lack of diversification in MFIs’ borrower profiles,” it said.
The rating agency said it expects banking habits to improve in the long term, as currency flow resumes.