Mini-lockdown may affect MFIs’ collections

Mumbai, Apr 10 (PTI): Microfinance institutions (MFIs) may face challenges in loan recoveries if more states look at imposing mini-lockdowns like Maharashtra amid a surge in COVID-19 cases, according to a report.
Maharashtra, which is seeing the maximum number of cases, has announced the most stringent restriction a mini-lockdown through April 30. Many other states have also announced night curfews and weekend lockdowns.
“If more states follow Maharashtra and impose mini-lockdowns of their own to curb the pandemic, and these continue for an extended period, (MFIs) PAR (portfolio at risk) recovery would be affected,” Crisil Ratings said in a report. Maharashtra is among the top five states in terms of microfinance loans, with assets under management (MFI AUM) of around Rs 16,700 crore as of December 2020, which amounts to around 7 per cent of all microfinance loans. Non-banking finance company microfinanciers (NBFC-MFIs) account for 40 per cent, or Rs 6,700 crore, of this pie.
The agency said collection efficiency in Maharashtra was relatively lower at around 85-90 per cent even before the latest curbs because of the previous extended lockdowns. The all-India average collection efficiency was 90-94 per cent in December 2020.
“The sector’s collection efficiency has stalled at 90-94 per cent in the past few months compared with the pre-pandemic level of 98-99 per cent. These mini-lockdowns can restrict improvement in the coming months,” Crisil Ratings Senior Director and Deputy Chief Ratings Officer Krishnan Sitaraman said.
However, NBFC-MFIs have been allowed to continue operations in Maharashtra unlike during the most stringent lockdown phase early last fiscal, which is a big relief as microfinance requires high personal connect, he said.
In terms of asset quality, as of December 2020, the sector’s 30+ PAR stood at around 11 per cent from nearly 2.5 per cent a year back, reflecting the impact on the borrower segment due to the economic challenges faced last fiscal, the agency said.
In Maharashtra, PAR was slightly higher at around 13 per cent. The sector PAR is likely to have improved marginally in the January-March 2021 quarter given the uptick in economic activity.
Nonetheless, it continues to remain high compared to pre-pandemic levels, it said.
The agency said the exposure of its rated NBFC-MFIs to Maharashtra ranges from 5 per cent to 28 per cent of their total loan book and accounts for over 65 per cent of Maharashtra’s MFI AUM.