NBFC-MFIs gross loan portfolio may grow by 10-15% in FY22: Report

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The gross loan portfolio of Non-Banking Finance Companies-Microfinance Institutions (NBFC-MFIs) is likely to grow at 10-15 % in the current fiscal, aided by an expected pick-up in disbursements, says a report. However, the Portfolio At Risk (PAR) of NBFC-MFIs may inch up to 5.5-6% this fiscal from 5.4% in the previous financial year, domestic rating agency Brickwork Ratings said in the report on Tuesday.

PAR levels for MFIs spike in FY21

The Gross Loan Portfolio (GLP) for NBFC-MFIs had grown only 11% YoY in FY 2021. “The GLP for NBFC-MFIs in FY22, is expected to return to the growth path and register around 10-15% growth due to a pick-up in disbursements owing to the expected recovery in economic activity, kickstarting of expansion plans that were halted due to the pandemic and increased need for credit among low-income segments,” the rating agency said.

PAR levels for MFI industry spiked in FY21 due to the lockdown in the first half of the year. As transactions with microfinance customers are cash-intensive, requiring field visits, the lockdown had a strong impact on the asset quality as their collections were badly hampered, it said.

It said the recent RBI announcements on increasing the flow of credit to Micro, Small, and Medium Enterprise (MSME) borrowers, along with allowing the loans given to MFIs for onward lending by small finance banks to be treated under Priority Sector Lending (PSL), will give impetus to growth in credit by MFIs.

PAR levels to stay elevated in FY 22

“In FY22, PAR levels are expected to stay elevated, at around 5.5-6%, due to uncertainties over the pandemic situation in the country,” the report said. Certain risks such as over-lending as evident from the high-ticket-size loans, the recent cyclone impact in some states (Goa, Maharashtra, Gujarat, Orissa and West Bengal) and any further announcement of farm loan waivers may hamper asset quality, it noted.

The recent developments in Assam, with the government announcing the Assam Microfinance Incentive and Relief Scheme (AMFIRS) 2021, will impact collections of players in the state. Such schemes affect the credit discipline of borrowers as they stop repaying loans in the hope of blanket write-offs. Hence, this will lead to PAR levels going up for players present in the state, the agency said.

It expects the profitability of MFIs to remain under pressure in FY22 as the second wave of the pandemic has hit rural areas hard. State-level mini lockdowns and localised restrictions this time have not been that stringent. However, the spread of the pandemic in rural areas has been a major cause of concern, it added.

Additionally, with the absence of a moratorium and other measures, livelihood in rural areas has been badly hit. “These factors may result in MFIs facing challenges in the collection and recovery of loans, thereby resulting in higher credit costs for players,” the agency said.