Cyclone Fani' Odisha carnage may weigh on micro-financiers' asset quality

State is the second-largest state in terms of MFI gross loan portfolios with total AUM of Rs 6,800 cr as of December 2018

Cyclone Fani, which hit Odisha's coast last Friday, could hurt the asset quality of some micro finance lenders such as Bharat Financial Inclusion (BFIL), Ujjivan Financial Services, L&T Finance Holdings, CreditAccess Gramen and Bandhan Bank.

Odisha is the second-largest state in terms of gross loan portfolios of microfinance institutions (MFIs) with total assets under management of Rs 6,800 crore as of December 2018. The state's share is about 11 per cent of MFIs gross credit. Non-banking finance companies classified as MFI have the largest share of 37 per cent in the overall micro credit pie, says the September 2018 data published by industry body, Microfinance Institutions Network or MFIN.

“MFIs could see some asset quality pressure as the main focus (of borrowers) would be on getting life back on the track. They are assessing the situation and trying to connect with borrowers,” says Supreeta Nijjar, vice president, financial sector ratings, at ICRA.  

Seven coastal areas of Odisha may have been materially impacted by the cyclone, says a report by ICICI Securities.

From the listed players, BFIL’s 16 per cent AUM is from Odisha, according to its December quarter filings. According to ICICI Securities, L&T Finance Holdings' exposure to Odisha stands at about 11 per cent and 1–2 per cent for Ujjivan and CreditAccess Gramin. Bandhan Bank has about two per cent of its branches located in the state.

Nonetheless, based on past experience, actual losses may not be significant. According to the ICICI Securities micro finance institutions have successfully navigated events like farm loan waivers and teh Kerala floods, and with a well-defined strategy, write-offs (indicating actual losses from bad loans) are likely to be negligible.  

Many micro financiers are considering giving 2-3 week repayment holiday (extra time for debt repayment) to the affected areas in Odisha, said an industry expert on a condition of anonymity.

For banks, agricultural loan exposure in Odisha needs be watched, though the overall exposure to the state may not be much, say experts.