ICRA carries stable outlook for NBFC-MFIs driven by expected healthy growth in AUM

11 Oct 2022 Evaluate

ICRA Ratings in its report has said that it carries a stable outlook for the non-banking financial companies-microfinance institutions (NBFC-MFIs), driven by the expected healthy growth in the assets under management (AUM) and the improvement in profitability. NBFC-MFIs reported a healthy rebound in the growth in their AUM in H2 FY2022 after having witnessed subdued growth in H1 FY2022. The industry saw accelerated disbursements in H2 FY2022, given the buoyant demand, healthy systemic liquidity, and the steady increase in economic activity. The disbursements are expected to remain healthy in the current year. It expects NBFC-MFIs and micro finance focused small finance banks (SFBs) to witness growth of 22-25% in their AUM in FY2023.

According to the report, the asset quality had weakened quite sharply in Q1 FY2022 because of the localised lockdowns imposed by various states on account of the second wave of the pandemic, which impacted the collection process of the entities. It also impacted the recovery in the cash flows of the affected borrowers. Therefore, the marginal borrowers slipped into the non-performing advances (NPA)/overdue category during this period as reflected in the increase in the 90+ days past due (dpd) in H1 FY2022. Nevertheless, the industry saw gradual improvement in H2 FY2022 and Q1 FY2023.

It stated that the improvement in collections helped the industry register an improvement in delinquencies in H2 FY2022 followed by a further recovery in Q1 FY2023. The 90+ dpd of 5.7% (for ICRA sample of NBFC-MFIs) as on March 31, 2022 was higher than rating agency’s estimate of 5% as slippages from the restructured book remained high. However, with further write-offs and recoveries, the 90+ dpd improved to around 5% by June 30, 2022. For FY2023, a significant decline in delinquencies is expected driven by some recoveries and write-offs by the entities. The ratings agency retains its estimate of 90+ dpd at around 2% by March 31, 2023. On the liquidity front, NBFC-MFIs and SFBs continued to maintain a healthy liquidity profile in FY2022 though a marginal decline was seen to reduce the negative carry.

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