Rating agency Crisil on Monday said it was assessing the recent developments in the micro finance space and its possible impact on MFIs. Any changes in rating or outlook, if any, will be announced shortly, the rating agency said in a statement.
Crisil has outstanding ratings on 12 MFIs including SKS Microfinance Limited, Spandana Sphoorty Financial Limited, and has rated 9 securitisation transactions originated by MFIs.
The rating agency in the past has consistently highlighted that as an emerging sector, the MFI industry is exposed to risks relating to changes in the political and regulatory environment.
?Crisil is monitoring the form and extent to which these regulatory developments will be implemented in the sector, and their potential impact on the business and financial risk profiles of the MFIs it rates,?? it said.
?MFIs that have a wider geographic presence, lower operating expenses, stronger systems and processes, and better governance practices are better positioned to manage the impact of any such developments,?? Crisil added.
India?s microfinance sector has faced heightened regulatory scrutiny in recent weeks. The ministry of finance has recently advised public sector banks to monitor lending rates of MFIs. ?The Andhra Pradesh government has passed an ordinance that significantly enhances regulatory control on MFIs in the state: this reflects the AP?s concerns regarding what it perceives are high interest rates being charged by the MFIs, and the coercive means of recovery they adopt,?? said Crisil in a statement.
?The MFI sector?s dependence on AP is high, since the state?s share of loans outstanding represents nearly 35% of the sector?s total portfolio. It is possible that any potential change in regulations may impact the sector?s growth, access to funding, asset quality, and operational costs over the near-to-medium-term,?? Crisil added.
Meanwhile, the Reserve Bank of India has also initiated a review of the priority sector status that is currently being accorded to bank lending to the MFI sector. RBI recently announced the formation of a sub-committee to assess MFI functioning. Commercial banks have an exposure of around Rs15,000 crore of which 30 to 35% is in AP.