Microfinance collections may dip 8-10% sequentially in April: Icra

With the surge in Covid-19 infections and lockdowns in various states, collections by India's microfinance Institutions may drop sequentially by 8-10 per cent in April, according to rating agency Icra.

The microfinance industry continues to witness uncertainty on asset quality amid the expected drop in collections, given the rapidly rising Covid-19 infections since March 2021. But, healthy liquidity buffers maintained by most entities provide some comfort.

Sachin Sachdeva, Vice-President, Icra, said several states/Union Territories (UTs) have either imposed lockdowns or have placed significant restrictions on people movement and gatherings to curb the spread of pandemic. This is creating disruptions in the economic activities and impacting the field operations of micro finance institutions (MFIs).

Consequently, the industry is witnessing a reduction in collections and the recovery seen in Q4 FY2021 is being challenged again. Icra estimates a sequential drop of 8-10 per cent in collections in April 2021. The same may dip further if the infections continue rising and more restrictions are imposed across locations.

The improvement in collection efficiency and pick-up in growth in assets under management (AUM) in H2 FY2021 helped the industry witness a marginal improvement in the overdue portfolio.

The 0+ days past due (dpd) improved to 16.7 per cent as on December 31, 2020, after rising to 18.1 per cent as on September 30, 2020, following the lifting of the moratorium.

The collections continued to improve in Q4 FY2021. As per interactions with various MFIs, Icra estimates a reduction of 300-400 basis points in the 0+ dpd in Q4 FY2021. However, the improvement in the 90+ dpd is expected to be marginal, as it is challenging for marginal borrowers to repay multiple instalments.

Among major states as per portfolio size, Assam led the chart on 90+ dpd, which stood at about 20.3 per cent as on December 31, 2020. The 90+ dpd for other major states are Maharashtra (7.8 per cent), West Bengal (6.1 per cent), and Kerala (6.1 per cent) respectively as on December 31, 2020 compared to a pan-India average of 4.9 per cent.