Advertisement
X

Assets Under Management Of NBFC-MFI Likely To Grow At 18% To 22% In FY2023: ICRA

The agency said it expects the long-term outlook for non-banking financial companies-microfinance institutions (NBFC-MFIs) to remain robust, driven by the fact that the growth in disbursements is expected to have continued in Q3 FY2022, after the revival in Q2 FY2022.

Domestic rating agency ICRA on Monday revised downwards the FY2022 growth outlook for assets under management (AUM) of NBFC-MFIs to 12 to 14 per cent but expects it to improve to 18-22 per cent in the financial year 2022-23.

Advertisement

The agency said it expects the long-term outlook for non-banking financial companies-microfinance institutions (NBFC-MFIs) to remain robust, driven by the fact that the growth in disbursements is expected to have continued in Q3 FY2022, after the revival in Q2 FY2022.

"The same is likely to be continued going forward, supported by healthy demand in the industry, increasing level of economic activity and increasing vaccination in the country," the agency said in a report on Monday.

Its Vice-President and Sector Head (Financial Sector Ratings) Sachin Sachdeva said the disruptions caused by the second wave impacted the AUM growth of the industry in H1 FY2022 as the movement of people was greatly hindered and the entities focused on collections instead of disbursements.

The steady increase in the disbursements in the industry from the second quarter of the financial year 2021-22 provides hope for better growth prospects in the current financial year.

However, in view of the muted performance in H1 FY2022, ICRA has revised the FY2022 growth outlook for the AUM of NBFC-MFIs to 12-14 per cent.

Advertisement

"The growth rate in the AUM of NBFC-MFIs is estimated to improve to 18-22 per cent in FY2023. There would, however, be downside risk to our estimates in case of significant disruptions caused by the new wave of infections in Q4 FY2022 or future waves if any," Sachdeva said.

The report said the asset quality metrics of MFIs weakened quite sharply in H1 FY2022 due to the localised lockdowns imposed by various states/ Union Territories (UTs) on account of the second wave, which impacted the borrowers' cash flows and, hence, the collection efficiency (CE).

The delinquencies had risen significantly in May-June 2021, however, with incremental restructuring and some recovery in CE, the reported delinquencies declined by September 30, 2021, though the same remain elevated as compared to March 2021 level, the report said.

In addition, NBFC-MFIs had around 10.7 per cent of its AUM as restructured as on September 30, 2021, the performance of which remains monitorable, it said.

Advertisement

 "While regulatory tightening in the form of daily recognition of non-performing advances (NPAs) and the upgradation on the full recovery of overdues could impact the reported NPA numbers, we expect the over 90 dpd (days past decline) to decline slightly in H2 FY2022, though it would remain elevated and would also depend on the impact of the ongoing third wave," Sachdeva said.

The report said the profitability performance was subdued in FY2021, given the pressure on yields, the impact of excess liquidity on the net interest margins (NIM) and the increase in credit costs. The pressure was compounded by the second wave and the industry reported a further decline in profitability in H1 FY2022, it said.

Sachdeva said though the industry is expected to witness an improvement in the AUM growth compared to growth in FY2021, the operating profitability is expected to remain moderate.

"Further, the credit costs are expected to remain elevated because of persisting uncertainty and expected slippages from the restructured book," he said. This will keep the profitability subdued for NBFC-MFIs and SFBs (small finance banks) in FY2022, though the same is likely to witness a significant improvement from FY2023, he said. 

Advertisement
Show comments