NBFC, bank of india, reserve bank of india, CRISIL Ratings, Crisil, collection efficiency

With the collection efficiency impacted due to the COVID-19 related disruptions, microfinance institutions (MFIs) may feel asset quality pressures and their 30+ portfolio at risk (PAR) may rise to 14-16 per cent in June, Crisil Ratings said in a report.

In the absence of a loan moratorium this year, more MFIs are likely to opt for permitting restructuring under the Reserve Bank of India’s (RBI) Resolution Framework 2.0 announced last month, and continue with higher provisioning, the report said.

“A hit to collection efficiency of microfinance institutions (NBFC-MFIs) owing to protracted COVID-19 curbs will increase asset-quality pressures in the sector.

“Loans in arrears for over 30 days – or the 30+ portfolio at risk (PAR) – could rise to 14-16 per cent of the portfolio this month from a recent low of 6-7 per cent in March,” the agency said.

This number had surged to 11.7 per cent in March 2017, in the aftermath of demonetisation, it added.

According to the agency’s Senior Director and Deputy Chief Ratings Officer Krishnan Sitaraman, the medical impact of the second wave of the pandemic has been much worse than the first wave, and afflictions have percolated to the rural areas too.

Ground-level infrastructural and operational challenges, as well as restrictions on the movement of people, have impinged on the MFI sector’s collection efficiency, he said.

“Though overall collection efficiency is expected at 75-80 per cent in May, compared to 90-95 per cent in March, pressure on asset quality would be higher as borrowers do not have a blanket moratorium this time, while their cash flows have been impacted by the second wave,” Sitaraman said.

The report said that with 30+ PAR mounting, the sector is expected to resort to a restructuring of loans to a larger extent than the last fiscal, as this is perhaps the only practical option to support the borrowers and not let accounts slip into the non-performing bucket.

As a result, the demand under restructuring 2.0 could be in the high-single digits compared to 1-2 per cent seen during restructuring 1.0 for the overall sector, it noted.

The agency’s Director Ajit Velonie said the NBFC-MFIs have created provisions (including a special COVID-19 provision in the fourth quarter last fiscal) estimated at 3-5 per cent of the asset under management (AUM) as of March 2021.

“Considering the likely rise in delinquencies and restructuring, higher-than-normal provisioning is warranted even in the first half of this fiscal to absorb the shocks,” Sitaraman said, adding that NBFC-MFIs with adequate liquidity, lower leverage, or those backed by strong parentage will be better placed to withstand the current situation.

The agency said its large-rated MFIs are either backed by strong parentage with access to capital or have comfortable capitalisation with gearing at around 3-3.5 times, which should allow them to withstand the stress.

These MFIs also have the liquidity to cover over two months of debt repayments – even after assuming nil collections – because disbursements have been low too, which has helped conserve cash.

“Nevertheless, the trajectory of recovery, access to incremental funding and capital position will bear watching, especially of the smaller MFIs,” it added.


Japan travel news, japan travel guides, japan holiday destinations and japan reviews

LATEST NEWS

NEWS RELATED

RBI extends risk-based internal audit system to HFCs

The Reserve Bank on Friday extended the risk-based internal audit (RBIA) system to select housing finance companies to enhance the quality and effectiveness of their internal audit system. In February this year, the RBI had issued a circular mandating the RBIA framework for select non-banking financial companies (NBFCs) and urban…

Read more: RBI extends risk-based internal audit system to HFCs

Cheque bounces hint at asset stress at NBFCs

Mumbai: High cheque bounce rates in May are indicating asset quality troubles for non-bank financing companies(NBFCs). Cheque bounce rates tracked by the National Payments Corporation of India’s (NPCI) e-NACH (National Automated Clearing House) platform rose by more than 250 basis points in value in May over April. A halt in…

Read more: Cheque bounces hint at asset stress at NBFCs

Credit score access trailing personal loan growth by wide margin, report

Growth in credit score access by individuals is trailing the jump in personal loans over the last few years by a wide margin, despite regulatory moves to provide credit information report free every year, India’s largest credit information company (CIC) said on Thursday. As against a 23-times growth in personal…

Read more: Credit score access trailing personal loan growth by wide margin, report

Government plans to dress up PSBs before sale; Bank of Maharashtra, BOI, IOB in queue

The government plans to dress up state run lenders’ balance sheets through capital support and sale of non-core assets among other measures before putting them on the block. The transformation plan also includes transfer of impaired loans to the proposed bad bank and reducing employee count by offering attractive voluntary…

Read more: Government plans to dress up PSBs before sale; Bank of Maharashtra, BOI, IOB in queue

Paytm unit seeks RBI exemption from NBFC tag

Paytm Entertainment — a subsidiary of fintech giant Paytm – faces the risk of being classified as a Non-Banking Financial Company (NBFC) after it lent money to a joint venture business that exceeded the central bank’s limits. The online ticket booking services provider has approached the Reserve Bank of India,…

Read more: Paytm unit seeks RBI exemption from NBFC tag

Large market, ready infra make India top destination for digital banks:BCG

India leads the digital banking opportunity among its South East Asian peers with a potential revenue generation of 6 to 10 times that of the other markets due to its large market, ready digital payment infrastructure and farsighted regulation, a report by consultancy firm BCG has said. In India, the…

Read more: Large market, ready infra make India top destination for digital banks:BCG

India offers huge potential for digital banks: Report

India offers a huge potential for Digital Challenger Banks (DCBs) but currency depreciation and local regulations are concerns for foreign investors, according to a report. Leading consultancy BCG said in the report on Wednesday that the revenue opportunity in India, which has a population of 130 crore people, was pegged…

Read more: India offers huge potential for digital banks: Report

Bank of India allots shares to govt for Rs 3,000 crore capital infusion

State-owned Bank of India on Friday said it has allotted preference shares to the government for Rs 3,000 crore capital infusion. The bank has allotted 42,11,70,854 fresh equity shares of Rs 10 each to the government (promoter) at Rs 71.23 per share, amounting to Rs 3,000 crore through preference issue,…

Read more: Bank of India allots shares to govt for Rs 3,000 crore capital infusion

RBI nod for Ghosh's re-appointment as Bandhan Bank MD and CEO for three years

MFI loans that are overdue beyond 30 days to cross demonetisation peak, reach 14-16%: CRISIL

Reliance Home Finance lenders staring at nearly 80% haircut

You'll see Religare back in action soon: Dr Rashmi Saluja

Central Bank of India inks co-lending pacts with Indiabulls Housing, IIFL Home Finance

Exclusive | COVID-19 second wave has taken a toll on SME collections: Shriram City Union Finance MD & CEO YS Chakravarti

Banks, asset managers want RBI to allow sale of fraud loans to ARC

Non-banks' NPAs may rise to 4.5-5 per cent by March 2022: Icra

OTHER NEWS