Microfinance lenders see 800 basis point decline in distressed assets in six months, according to Crisil Ratings

MUMBAI: Stressed assets of microfinance institutions, including loans over 30 days past due and loans undergoing restructuring, reportedly declined by 800 basis points (bps) to 14% in March, after peaking at 22% in September 2021, Crisil Ratings Ltd said on Monday.

Still, the metric remains well above the pre-pandemic level of more than 30 portfolios at risk (PAR) at 3%, he said. The term 30+ PAR refers to loans whose repayments are more than 30 days past due.

Reduced stressed assets, along with improved collection efficiency, mark recovery in NBFC-MFI asset quality, supported by economic recovery, limited impact of Omicron variant and acclimatization to the new post-pandemic normal, the statement said.

The newly created portfolio – loans disbursed after July 2021 – of NBFC MFIs demonstrated stable performance, with 30+ PAR estimated at only 1-2%. Overall monthly collection efficiency was healthy at an average of 97-100% in the fourth quarter of last fiscal year. However, foreclosures were higher in the last quarter of last fiscal year, he said.

Krishnan Sitaraman, Senior Director and Deputy Director of Ratings, Crisil Ratings, said the microfinance sector has restructured 10% of its loan portfolio under Resolution 2 announced by the Reserve Bank of India (RBI) following of the second wave of covid-19, compared to only 1 to 2% in the first.

“The magnitude of this varied between entities from 2% to 17% and had a strong correlation with the regional impact of the second wave, which had affected the informal economy and rural India more drastically than the first. The collection efficiency of the restructured book, which began billing in the last quarter of the previous fiscal year, is currently at 60-65%. This indicates a higher likelihood of slippages,” Sitaraman said.

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Lucas E. Kelly