Microfinance industry sees 15% growth at Rs 1.9 trillion, says ICRA

Helped by improvement in monthly collection efficiencies, the microfinance industry registered a 15 per cent year-on-year growth at around Rs 1.9 trillion during April to December last year, a report said.
Within this, the portfolio outstanding under the NBFC-MFIs, microfinance focused small finance banks (SFBs) and universal banks grew at a faster pace of 19 per cent.
The sector’s collection efficiency has been improving steadily with the monthly collection efficiencies, including overdue collections, up to 97 per cent for December last year, from sub-90 per cent till March, ICRA said in a report.
For disbursements made in calendar year 2017, most of the lenders reported 98-plus per cent collection efficiencies.
According to the rating agency, improved collection efficiency trends, coupled with portfolio growth and some write-offs led to an improvement in 0 days past due (0+ dpd) delinquencies for the sector, from the peak of 23.6 per cent in February 2017 to 12.6 per cent in December 2017.
While the harder bucket delinquencies have also been declining as reflected by 90+ dpd percentage declining from a peak of 12.2 per cent in June 2017 to 9.9 per cent in December 2017, the degree of reduction has been lower, owing to sticky delinquencies in the affected geographies, it noted.
“We expect the industry portfolio to increase to Rs 2 to 2.1 trillion by end of FY18 and maintain an annualised growth of 20 to 22 per cent over the medium term with a higher growth of 25 to 30 per cent per annum for the non-self help group (SHG) portfolio,” Supreeta Nijjar, sector head (financial sector ratings), ICRA said.
According to her, there has been some diversification in state-wise distribution of portfolio, with entities reducing their exposure to the weaker performing states of Uttar Pradesh, Maharashtra, Kerala and MP.
The states which were less impacted during the demonetisation period such as Tamil Nadu, West Bengal, Odisha and Bihar had seen their share grow between September 2016 and September 2017.
The ICRA report noted that supported by capital infusion of Rs 3,000 crore in year-to-date in FY18 (Rs 4,700 crore in FY17), the solvency profile (net NPA/net worth) for the sector remained comfortable at 17 per cent as on 31 December, 2017.
Given that the overall unprovided NPAs for the microfinance sector were high at Rs 2,350 crore, the rating agency expects the sector to report credit costs in the range of 6 to 8 per cent for FY18.
Some of the provisioning impact of demonetisation-related credit costs may spill over to first half of FY19, according to ICRA.