With rising delinquencies in microfinance loan books, rating agency Icra has revised the outlook on Satin Creditcare Network Ltd’s (SCNL) debentures from “stable” to “negative".
The revision in outlook reflects SCNL’s elevated financial risk profile following demonetisation, which is reflected in the lender's deteriorating asset quality.
Icra in statement said collection efficiency in SCNL’s loan portfolio dropped from over 99 per cent (pre-demonetisation) to 78 per cent for the period November 2016 to February 2017. The dip in collection performance was due to limited currency supply, disruption in borrowers’ cash flows and political intervention in certain districts of Uttar Pradesh, Madhya Pradesh and Maharashtra.
There has been significant deterioration in portfolio asset quality as delinquencies in the 30 days past due (dpd) bucket rose to 31 per cent and in the 60 dpd bucket to 16 per cent by end of January 2017.
Icra, however, affirmed “BBB+” rating for these non-convertible debentures and subordinated debt. SCNL has a good track record of operating in the microfinance segment, with a managed portfolio base of Rs 3,343 crore as on December 31, 2016. SCNL is operating through 560 branches across 16 states of India.
The rating continues to favourably factor in adequate liquidity position of the company and access to unutilised funding lines from a diversified lender base.
Icra takes comfort from the fact that the company has tied-up Rs 97 crore of capital and promoter family which is expected to be infused in the company shortly. This is likely to support Satin’s capitalisation profile incase losses from delinquent portfolio were to crystallise. The company has raised Rs 250 crore equity during FY2017.
The collection efficiency has been improving. The collection efficiency in February was at 89.6 per cent. But a significant recovery from overdue loans (especially 60 days past due) could be protracted due to the marginal borrower profile and the unsecured nature of the microfinance loans.
The company has diversified its product mix such as expansion into Micro, Small and Medium enterprises segment (MSME) and Product financing segment and is in the process of upgrading its MIS systems, Icra added.