MFI collections drop below 70% since April, disbursals on pause, BFSI News, ET BFSI

Banks and non-banking financial companies have seen their collections drop during the second wave of the pandemic, but the microfinance institutions (MFIs) have taken the biggest hit.

MFI collections have dropped below 70% in April as borrowers defaulted on payment.

Collection efficiency has dropped to 60-75% for the sector in May, which depends directly on the geographic profile of the loan portfolio like Karnataka, Tamil Nadu and even parts of Maharashtra, faced extremely strict lockdown.

How institutions fare

Satin Creditcare Network said its collection efficiency for March 2021 was 105%, which marginally dipped to 93% in April, 2021 and fell lower to 75% due to the extended lockdown in May 2021. In June, the micro financier hired over 1,000 collection agents to fasten the recovery process of hardbucket delinquency — loans overdue for more than 90 days.

For Asirvad Microfinance, a subsidiary of Manappuram Finance, collection efficiency dropped to 80-85% in June, as against 90-95% in March 2021. Its NPA level has also gone above 2.5% in the April-June quarter, as compared to 1.2-1.5% in the previous quarter.

For Spandana Sphoorty collection efficiency dipped from 96% to around 80% in April-May, and disbursements have been on a pause and approach will be calibrated in the near term, according to a Yes Securities brokerage report.

The collections are likely to revive in June, but won’t be significantly high as travel restrictions are gradually getting lifted and the MFI sector revolves around a physical collection model.

Jammu: A fruit vendor pushes his cart through a deserted market area as he searches for customers, during COVID-induced weekend lockdown in Jammu. (PTI Photo)(
Jammu: A fruit vendor pushes his cart through a deserted market area as he searches for customers, during COVID-induced weekend lockdown in Jammu. (PTI Photo)(

MFIs 30-plus delinquency

With the collection efficiency impacted due to the Covid 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 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.

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.