The problems for both microfinance (MFIs) and smaller NBFCs do not appear to be abating as the impact of the second wave of Covid has raised concerns regarding their resurgence. It should be noted that these sectors already experienced declining AUMs and high credit stress in the previous fiscal year.
Accordingly, according to the credit rating downgrades conducted in the first quarter of FY22, out of a total of 13 credit downgrades from issuers, 10 relate to smaller MFIs and NBFC offering unsecured MSME, personal and auto loans.
The Acuite Ratings report notes that collection efficiency, which improved to above 90 percent in March 21, fell to 65-85 percent in Q22.
“In addition to the lower collections, the ability of these smaller players to incur debt has been impaired as an estimated 50 percent of the players (with loan portfolios of more than 500 crore) have received sufficient funds.”
“Recent government and RBI bailouts are expected to support continuity of credit to microfinance and MSME borrowers while enhancing liquidity relief for the smaller lenders.”
It further mentioned that the impact of the second wave of Covid was severe in the case of collections in the asset classes of microfinance and two-wheeler loans compared to the first cycle.
“Even if two-wheeler as an asset class outperformed during the first wave of lockdowns, the impact was greater during the second cycle due to the spread of the pandemic in rural areas and the stress on borrowers’ cash flows from loss of income and high medical costs” , said Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research.
“Given the intermittent nature of economic activity in the wake of the Covid spread in Q1FY22, borrower revenue streams, particularly those from smaller NBFCs or MFIs, have been severely affected, exacerbating asset quality stress for these lenders.”
Nevertheless, the report stated that now that the moratorium is no longer available, borrower stress is all the more visible in this cycle.
With Pti inputs
For investment related articles, business news and mutual fund advice
You are already subscribed
Story first published: Saturday, July 10, 2021, 10:57 PM [IST]
Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of salesground.org and salesground.org does not assume any responsibility or liability for the same.