Unpaid dues from previous months to keep NPA at elevated level for MFIs


Kolkata: Even as most microfinance lenders said that repayment collection for October exceeded 90%, unpaid dues from the previous four-five months still remain a concern, likely inflating credit costs at the lenders.

Cumulative repayments continue to be low in the range of 60-70%, industry organization Sa-Dhan said. Another area of concern for the sector is that 4-5% of customers are yet to begin repayments.

These pose a risk of high NPAs and call for higher provisioning, at least in the short run, said Sa-Dhan.

Just about 0.69% of MFIs’ loan total portfolio of Rs 1.02 lakh crore was non performing at the end of March 2020.

“It is still a wait-and-watch scenario. So far so good, but the sector has still to travel some distance… The MFIs’ ability to encourage repayment from this set of customers, without coercive measures, will be a test in portfolio management and client handling,” it said in its annual microfinance report.

The cumulative repayment data reflects that borrowers who have started paying after the end of the moratorium still have dues carried forward from previous months, keeping the stakeholders on the edge.

MFIs have booked interest income from all loan accounts during the moratorium period and the likely reversal of it on delinquent accounts by the end of the fiscal would put pressure on their total income going forward.

This keeps investors worried. Most entities put their plans to raise equity on hold in the first half of the fiscal amid the pandemic-induced stress. Rating company ICRA expects equity infusion in the industry to remain limited in the second half too and is likely to flow only to large and well-established entities.

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About 12% of the borrowers in ICRA’s sample of 21 entities with collective assets under management of Rs 54,213 crore availed a complete moratorium offered during April-August 2020. ICRA predicted a rise in near-term delinquencies to double digits as it will be difficult for such borrowers to clear their dues. However, rise in credit costs could be lower at 6-7% than what was anticipated earlier and would spread over two years FY2021-FY2022.

A majority of the MFIs extended the tenure of the loans and maintained the EMI amount unchanged as per the loan contract, while others have either raised the EMI for the same loan tenure or added the accumulated interest during the moratorium period to the last few EMIs, according to Dvara Research, which said that the next two options might affect the repayment discipline of the borrower if they are unable to repay the amount.

According to ICRA’s estimates, the sector would require an external capital of Rs 8,500-10,000 crore (30-35% of the closing net worth as on March 31, 2020) for growing at a rate of 15-20% per annum over the next three years and absorbing the higher credit costs during this pandemic.

During the fiscal 2020, MFIs collectively raised fresh equity to the tune of Rs 1,690 crore with about 78% of it being grabbed by MFIs with portfolio over Rs 2000 crore. At the end March, MFIs had a net owned fund of Rs 14,972 crore cumulatively with equity constituting nearly Rs 4,489 crore, data from Sa-Dhan showed.





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