 "Icra upgrades rating for three micro-fin firms")
The upgrade of these microfinance-focused non-banking financial companies (NBFCs) reflects likely improvement in their earnings and superior ability to control asset quality, Icra said on Monday.
A combination of factors led to these improvements. There is clarity and changes in the regulations.
Also, there have also been internal changes at microfinance companies. Their ability to regain the confidence of equity investors is reflected in the equity infusions after the Andhra Pradesh crisis, Icra said. The clarity in the regulatory environment, reduction in risk due to regulatory restrictions on overall leveraging of the borrower and data sharing through credit information bureaus are useful for the asset quality of MFIs.
The successful reorientation of products and processes by these MFIs and improved access to external equity are likely to help them scale up operations in a profitable manner, while complying with the revised regulations.
The upgraded MFIs are likely to report reasonable returns at 10 per cent interest margins, although a higher interest margin cap of 12 per cent for one year gives such microlenders an additional transition period.
The agency upgraded Grameen’s long-term loans and non-convertible debentures (NCDs) to ‘BBB’ from ‘BBB-’. It revised rating for Ujjivan’s NCDs from ‘BBB-’ to ‘BBB+’. It revised rating for Utkarsh to ‘BBB-’ from ‘BB-’.
The application for obtaining the NBFC-MFI status is pending with the Reserve Bank of India (RBI) for the upgraded entities.
These companies comply with the norms specified by RBI for the NBFC-MFI status, Icra added.
When RBI grants the MFI status to NBFCs, it may open up more funding avenues (such as external commercial borrowings, priority sector loans from banks) for them. But they may have limited incentive to reduce the costs of funds due to cap on margins, fixed lending rates and the difficulty is communicating changes in lending rates to for new loans.