Credit and finance for MSMEs: The growth momentum for India’s microfinance industry (MFI) is expected to continue with around 25 per cent year-on-year (YoY) jump in assets under management (AUM) in the current financial year, driven by steady disbursement growth and an improving macroeconomic environment, said credit rating agency CareEdge on Wednesday.
The MFI experienced a slowdown in growth in FY21 due to the challenges posed by the Covid-19 pandemic. However, growth rebounded in FY22, with NBFC-MFIs growing at 18 per cent Y-o-Y, supported by strong disbursements in the latter part of the fiscal year, and at 20 per cent in FY23.
NBFC-MFIs disbursements stood at Rs 17,260 crore in the second quarter of FY23, growing from Rs 13,181 crore in the fiscal’s first quarter.
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Moreover, the microfinance industry has experienced a shift in market share, with NBFC-MFIs overtaking banks for the first time in four years. While banks held a dominant position during the Covid-19 period, the growth rate of NBFC-MFIs has now surpassed that of banks, resulting in NBFC-MFIs commanding a higher market share in the overall microfinance sector, the agency said.
As of December 31, 2022, NBFC-MFIs contributed around 38 per cent to the outstanding overall microfinance loans, compared to banks’ 36 per cent. With a growth rate of around 20 per cent till December FY23, NBFC-MFIs were leading the industry. In comparison, small finance banks had a share of 16 per cent in overall outstanding microfinance loans.
In terms of asset quality, the agency said it expects asset quality pressure to ease as the restructured portfolio decreases while the gross non-performing asset (GNPA) ratio is also anticipated to decrease to 3 per cent by the end of fiscal 2024 from an expected 3.5 per cent by FY23 end, although it will remain high compared to pre-Covid levels.
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“Post the exacerbating impact of the Covid-19 pandemic on the income profile of low-income groups of the economic society and the resultant increase in delays in debt servicing by the end borrower, asset quality stress spiked for the sector. The GNPA ratio peaked at 6.26 per cent on March 31, 2022, compared to 2.05 per cent as on March 31, 2020, owing to a steep rise in slippages,” the ratings agency noted.
However, with better collection efficiency supported by an improving macroeconomic environment along with substantial write-offs, improvement in the NPA trend can be seen. Also, the restructured book declined from 9.47 per cent as on March 31, 2022, to 5.13 per cent as on September 30, 2022, and is expected to further decline to around 2.5 per cent of the overall book as on March 31, 2023.
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