Rating agency ICRA has lowered its rating for Janalakshmi
Financial Services’ (JFS’) long- term loans and debentures, from ‘A+’ to ‘A’, saying there’s been a sharp deterioration in asset quality.
Hits by the November 2016 demonetisation, the microfinance company saw loan overdues (90-plus days) jump from 1.1 per cent in January to 26.1 per cent in May.
ICRA said its outlook had been revised from negative to stable for debentures
and long-term facilities. This factors in the continued deterioration in asset quality
after a post-demonetisation
weakness in collection efficiency, which is likely to put pressure on the company’s capitalisation and profitability indicators. ICRA noted JFS had been trying to improve collections. However, with the unsecured nature of the loans, recovery remained to be seen.
However, there is adequate liquidity, backed by healthy cash deposits and liquid investments (Rs 2,548 crore as on end-March) and access to funding lines from a diversified lender base. The Bengaluru-based MFI is to see on change into one of the new Small Finance
Banks, in this financial year.
Collection efficiency dropped to 78 per cent in January 2017, from 98 per cent in October 2016. And, didn’t recover meaningfully, remaining at 79 per cent in May. Tamil Nadu, West Bengal, Jharkhand and Bihar has seen MFIs relatively less affected by demonetisation
but JFS collections have been hit, And, collections in Uttar Pradesh, Maharashtra and Karnataka remain significantly lower than the pre-demonetisation
levels. ICRA has acknowledged JFS’ geographically diversified portfolio, strong management team and board composition. Net profit was Rs 170 crore on a managed asset base of Rs 15,053 crore in 2016-17, up from Rs 160.3 crore in 2015-16, on a managed assets base of Rs 13,345 crore.
In FY15, it was Rs 75 crore on a managed assets base of Rs 5,105 crore.
Capitalisation is adequate, with a net worth to managed portfolio of 19.1 per cent as on end-March. However, the profitability indicators have moderated, with return on average managed assets at 1.2 per cent for FY17, from 1.7 per cent in FY16.