Non-banking finance companies – microfinance institutions’ (NBFC-MFIs) assets under management (AUM) growth is likely to moderate to 17- 19 per cent in the current financial year from 29 per cent in FY24 amidst rising concerns about asset quality, said credit rating agency ICRA in a report. Moreover, credit cost is also likely to jump by 100-120 bps to 320-340 bps in FY25 from 220 bps in FY24 which along with an expected margin compression may impact profitability in FY25.
As per ICRA’s estimates, the non-performing assets (NPAs) in NBFC-MFIs have increased by 30 bps in Q1 FY25.
The credit rating agency said the robust growth in the last two years has accentuated concerns about the potential overleveraging of borrowers in certain regions.
Moreover, farmers’ protests and the Karz Mukti Abhiyan in certain regions, especially Punjab and Haryana, have impacted collections and asset quality, ICRA said.
This, along with climatic conditions and operational challenges, including employee attrition, would keep the asset quality under pressure in the near term, it added.
In July this year, microfinance body Microfinance Industry Network (MFIN) said the overall indebtedness of a borrower should be limited to Rs 2 lakh and the number of microfinance lenders to a debtor should be a maximum four. MFIN said that with nearly 80 per cent of the micro-loans having a tenure of 18 months or more, a limit of Rs two lakh will effectively mean lesser repayment obligation for a borrower.
However, ICRA noted that while the norms may address the risk to some extent, adherence to the same remains monitorable. The agency said it expects some impact on the business volumes in the near term with some borrowers becoming ineligible for microfinance loans under the lending guardrails.
According to the available data, NBFC-MFI loan delinquency by over 90 days stood at 2.1 per cent as of March this year and is estimated at 2.4 per cent as of June.