NBFC-MFIs’ stressed assets likely declined 800 bps, but still above pre-Covid levels: Crisil

Credit and Finance for MSMEs: The reduction in stressed assets, along with improved collection efficiencies indicated a recovery in the asset quality of NBFC-MFIs, supported by economic revival, limited impact of the omicron variant, and acclimatisation to the post-pandemic new normal, Crisil said.

microfinance
The overall monthly collection efficiency was at an average of 97-100 per cent in the fourth quarter of FY22, up from near 80 per cent in May 2021. (Image: pexels)

Credit and Finance for MSMEs: Stressed assets of non-banking financial companies-microfinance institutions (NBFC-MFIs) comprising 30+ portfolio at risk (loans overdue by over 30 days), and loan book under restructuring are estimated to have declined a significant 800 basis points to around 14 per cent as of March 2022, after peaking to approximately 22 per cent in September 2021, according to credit rating agency Crisil. However, it remained well above the pre-pandemic level of 30+ PAR at around 3 per cent.

“The microfinance sector restructured around 10 per cent of its loan book under the Resolution Framework 2.0 announced by the Reserve Bank of India (RBI) in the wake of the second Covid-19 wave, compared with a mere 1-2 per cent in the first wave,” said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings. 

The restructuring for March 2022 for NBFC-MFIs was 10.1 per cent in comparison to 12.1 per cent for March 2021, said Alok Misra, Chief Executive Officer and Director, Microfinance Institutions Network.

“While it has certainly improved but there is still a long way to go to around 3.5 or 4 per cent of the normal figure. In disbursements also there is a great uptake because for the first time after Covid, the disbursements during Q4 FY22 at Rs 83,639 crore were higher than Q4 FY20 disbursements at Rs 71,000 crore,” Misra told Financial Express Online.

On the other hand, the overall monthly collection efficiency was at an average of 97-100 per cent in the fourth quarter of FY22, up from near 80 per cent in May 2021.

The reduction in stressed assets, along with improved collection efficiencies indicated a recovery in the asset quality of NBFC-MFIs, supported by economic revival, limited impact of the omicron variant, and acclimatisation to the post-pandemic new normal, Crisil said in a statement on Monday. 

“Recovery wise, we are getting similar reports of 95 to 100 per cent in Q4 from 85-95 per cent during the year-ago period. The overall growth of the sector will further improve by September as disbursements have started, regulations have improved etc.,” added Misra.

Collection efficiency of the restructured book, billing for which began in Q4, is currently at 60-65 per cent indicating higher probability of slippages, added Sitaraman. Slippages are referred to standard assets turning NPAs during a period. In the backdrop of sizeable restructuring and possible slippages, most NBFC-MFIs have increased provisioning to fortify their balance sheets against asset quality risks, the agency noted. 

Moreover, since the RBI had removed the cap on pricing loans by NBFC-MFIs under the new regulatory framework for microfinance loans from April onwards, the NBFC-MFIs can now look at risk-based pricing of loans. This would enable them to enhance provisioning if needed, it added.

“NBFC-MFIs increased provisions to around 6 per cent of the loan book as of March 2022 from only around 2.5 per cent as of March 2020. With the adoption of risk-based pricing, they will likely continue to maintain higher provisions in their attempt to build a more resilient balance sheet,” said Poonam Upadhyay, Director, CRISIL Ratings. 

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