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21
March 2017
 |
| Microfinance Institutions (MFI) (The Total Investment & Insurance Solutions) |
Post
demonetisation, the delinquencies in microfinance institutions (MFI) loan books
are rising. Ratings agency ICRA recently downgraded its outlook on two
prominent MFIs to negative from stable, mainly due to limited currency supply
and disruption in borrower cash flows, which hampered overall the collection efficiency
of these lenders.
ICRA
downgraded to negative from stable its outlook on Janalakshmi Financial
Services Ltd (JFSL), which has a presence in 222 cities across 17 states and
two Union Territories. Janalakshmi has asset under management of Rs12,416 crore
and had registered a high compound growth of 130% over the past four
years. The Total Investment & Insurance
Solutions
"The
revision in outlook factors in the adverse impact of demonetisation on JFSL’s
asset quality, where overall collections efficiency is affected by the limited
currency supply, disruption in borrower cash flows, and political intervention
in certain states, namely, Uttar Pradesh, Maharashtra and Madhya Pradesh. The
company’s collection efficiency dipped to 78% in January 2017, from about 98%
in September 2016. The company’s disbursements were also impacted because of
the limited availability of currency; thus, the disbursements moderated to
about 55% (November 2016), 31% (December 2016) and 60% (January 2017) of its
average disbursements for seven months of FY2017," the ratings agency
says.
Similarly,
ICRA cut its outlook on Satin Creditcare Network Ltd’s (SCNL) debentures, to
negative from stable, citing elevated financial risk profile post
demonetisation that reflects in the lender's deteriorating asset quality. In a
statement, the ratings agency says, "Collection efficiency in SCNL’s loan
portfolio dropped to 78% for the period November 2016 to February 2017 from
over 99% (pre-demonetisation). The dip in collection performance was due to
limited currency supply, disruption in borrowers’ cash flows and political
intervention in certain districts of Uttar Pradesh, Madhya Pradesh and
Maharashtra." The Total Investment & Insurance
Solutions
However,
ICRA found improvement in SCNL's collection efficiency during February.
"The collection efficiency in February was at 89.6 per cent. But a
significant recovery from overdue loans, especially 60 days past due (dpd)
could be protracted due to the marginal borrower profile and the unsecured
nature of the microfinance loans."
Earlier
in January, the ratings agency had stated that it sees a substantial drop in
MFI profits during FY2017-18, mainly due to rise in credit and operating costs
and fall in collections. "The Rs55,000 crore sector (MFIs and non-bank
finance companies) had displayed strong asset quality till recently," said
ICRA, "with the share of overdue loans lower than one per cent as on 30
September 2016. That number for MFIs had increased to 19% as on 31 December
2016." The Total Investment & Insurance
Solutions
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