Hit hard by the note ban, securitisation volume of microfinance institutions (MFIs) fell 21 per cent to around Rs 7,150 crore in fiscal 2017 compared to Rs 9,000 crore last year, says a report.
Domestic rating agency Icra said MFIs raised nearly Rs 5,500 crore through the securitisation route in the first six months of fiscal 2017 but this fell to just around Rs 1,650 crore in the second half.
Last year MFI securitisation volumes had increased 80 per cent to around Rs 9,000 crore.
"The dip in micro loan securitisation volume is primarily due to the impact of the demonetisation on the portfolio of most MFIs.
"Investors also adopted a wait and watch approach for this asset class on the back of a rapid increase in the portfolio at risk numbers in the softer delinquency buckets, and the uncertainty around the portfolio performance going forward," Icra said in a note today.
The impact of the unexpected demonetisation also magnified for this asset class due to high reliance on cash for both collections and disbursements to MFI borrowers, the agency said, adding the cash crunch resulted in loan repayments being severely impacted.
"Additionally, local political interference and rumours of loan waiver in some areas led to further disruption in the collection process. This was primarily seen in states where local body or assembly elections were due," it said.
The agency further said it's rated MFI transactions were strong till October 2016 collection with monthly and cumulative collection efficiency in the 98-100 per cent range.
"However, post-demonetisation, the monthly collection efficiency of the pools declined significantly in November and December 2016 to 91 per cent and 82 per cent, respectively," the report said.
Post-demonetisation, there was also a notable slowdown in loan disbursements due to lack of currency availability in the initial period, and also on account of MFIs becoming more cautious while offering incremental loans, especially in geographies where collections were low.
Due to sharp decline in disbursements, additional funding requirement for MFIs also reduced, which further took a toll on securitisation volume, as around 25 per cent of incremental funding requirement of MFIs was being met through the securitisation route, it said.
Majority investors in securitisation transactions were banks, with their prime motive for investing in these transactions being to meet their priority sector lending targets, it said.