Calcutta, Dec. 18: Microfinance institutions are bracing for a tough third quarter because of deterioration in the loan recovery rate after the scrapping of old Rs 500 and Rs 1,000 notes.
"The numbers for the second quarter showed NPAs are still under 1 per cent and the loan recovery rate is above 99 per cent. But, after November 8, the ground situation has undergone certain change and the impact will be felt for the subsequent quarters," said Ratna Vishwanathan, chief executive officer of Microfinance Institutions Network (MFIN), the industry body for such non-banking finance companies (NBFCs).
Earlier this month, rating agency Icra has put three small MFIs - Cashpor Micro Credit, Sambandh Finserve and SV Credit Line - under negative watch and observed that the collection efficiency had slowed after demonetisation because of limited currency supply and disruption in borrower cash flows.
Icra further said unless the ground situation improved, MFIs could face further pressure on liquidity and asset quality over the next 3-6 months even if disbursements are reduced significantly.
Recovery of credit in the MFI industry is primarily in the form of cash, but several entities are now exploring digital options.
According a senior executive of a city-based MFI, cash availability in the rural areas is yet to normalise although it has improved in the last few weeks.
The aggregate gross loan portfolio of NBFC MFIs stood at Rs 57,941 crore for the quarter ended September 30, 2016, a growth of 84 per cent over the corresponding year-ago period, according to data from MFIN.
Geographically, south India's contribution to the aggregate loan portfolio was the highest at 31 per cent, followed by north at 28 per cent, west at 25 per cent and east at 16 per cent.
The total loan portfolio of the industry during the quarter was Rs 81,590 crore after including banks, non-profit MFIs and other financial institutions.
India Ratings has said in a report that if the money flow of MFIs does not normalise by the fourth quarter of the ongoing fiscal, the tier-1 capital of a few MFIs could near regulatory minimum levels. All NBFC MFIs are required to maintain a cumulative capital adequacy of 15 per cent of their aggregate risk weighted assets.
