Notwithstanding concerns over the impact of inflation on borrowers’ ability to repay loans, recoveries in the microfinance segment is expected to improve going ahead.
“The asset quality (of MFIs) has suffered significantly due to the Covid-19 pandemic. But there is a huge positivity in the last year or more as the repayment for the current loans have become almost normal with near 100% recovery. Many NBFC MFI have written off their bad assets and cleaned their balance sheets in a much better manner. Going forward, I am expecting better days for MFI recoveries,” Jiji Mammen, executive director and chief executive officer, Sa-Dhan said.
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“The very fact that the RBI has stipulated that the repayment obligations of a MFI borrower from all kinds of loans should not exceed 50% of his/her monthly income provide for sufficient cushion to take care of the inflation experienced by the borrowers and leaving sufficient surplus for their regular needs.”
The loan portfolio of micro-financiers rose 43.4% year-on-year (y-o-y) to `1.2 trillion as on December 31, a recent press release by self-regulatory organisation Sa-Dhan showed. The non-performing asset ratio of these lenders stands at 9.28% of the total loan portfolio.
While the portfolio quality of micro-financiers has improved across loan buckets, the portfolio at risk for the 180 days past due category witnessed a deterioration, the press release showed.
Increasing loan ticket sizes, the impact of inflation and any possible risks arising from announcements in the state elections and national elections would be key for the microfinance segment in the next 18 months.
“A sizeable share of micro-finance borrowers are in the agriculture segment. Hence, the sector will take a hit if a drought-like situation occurs since the ability of borrowers to repay loans would be impacted. We do see MFI collections getting affected a tad,” a senior official at a state-owned microfinance provider said.
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While the micro-finance segment faces various challenges, bankers are confident that the segment will side-step these challenges due to the strong provisioning of lenders.
“Regarding the prospects for MFI asset quality, we are hopeful and optimistic. We have noticed a substantial improvement in asset quality as a result of the decline in the stressed loans and enhanced collection efficiency, which has been backed by the continued economic revival,” HP Singh, chairman and managing director, Satin Creditcare Network, said.
“Further, the elimination of the cap on loan pricing by NBFC-MFIs under the new regulatory framework for microfinance loans beginning in April 2022 has allowed NBFC-MFIs like ours to consider risk-based loan pricing. This will allow us to have a cushion for eventualities, thereby enhancing the quality of our overall assets,” he added.
Various lenders are monitoring inflation trends on a regular basis and evaluating borrowers’ ability to repay loans. They are also providing borrowers with financial education and training to enable them manage resources effectively during inflation.
“..we have a highly professional and seasoned team that works relentlessly to secure timely repayment from our borrowers. We leverage technology and data analytics to streamline and enhance our collection initiatives. Nonetheless, we do keep a careful eye on any prospective economic and political modifications that might impact our collections. We also proactively monitor any local or regional developments and prevent potential dangers to our collections by taking the required precautions,” Singh said.