(MFIs) and small finance banks
are likely to need an external capital of Rs 9,000-Rs 11,000 crore to grow at a CAGR of 25-30 per cent over the next three years, says a report.
The report by a domestic rating agency, ICRA, said the credit costs for the industry as a whole is likely to be in the range of 5.5-8 per cent for the financial year 2017-18.
"Given their higher expected credit costs for FY18, we estimate that MFIs
and SFBs together would need external capital of Rs 9,000-11,000 crore for growing at a CAGR of 25-30 per cent over the next three years, while maintaining a leverage at around 5 times," the report said.
In FY17, MFIs
and SFBs raised an aggregate of Rs 4,713 crore of equity capital, of which Rs 1,155 crore was raised after demonetisation, indicating continued support from equity investors.
For the financial year 2017-18, the rating agency expects a total capital requirement for MFIs
and SFBs at 4,000-5,000 crore.
"The present leveraging levels expected credit losses and ability to raise capital will be a critical distinguishing factor for MFIs
in the near to medium-term," ICRA'S group head (financial sector ratings), Rohit Inamdar, said.
It said based on the present recovery trends from delinquent buckets, 70-75 per cent of the portfolio delinquent more than 90 days is likely to be written off, therefore mean credit costs for the industry as a whole are likely to be in the range of 5.5-8 per cent for FY18.
"The extent of the impact will differ across MFIs
based on the share of the portfolio in impacted geographies, their client connect, field discipline, collection frequency, IT systems and appraisal mechanisms and pro-activeness to curtail operations in overheated areas," Inamdar said.
Credit costs could vary from 2 per cent for entities which were impacted to a limited extent because of demonetisation
to around 18 per cent for entities, which had a greater impact, it said.
“Concerns on over-leveraging, dilution of discipline, politically sensitive nature of clients as well as various states announcing farm loan waivers, have increased, therefore, collection efficiencies are unlikely to come back to pre-demonetisation
levels of over 99 per cent in the medium-term,” the report said.
The steady state credit costs are likely to be 2.5-3.5 per cent.