MFIs might write off NPAs worth over Rs 4,100 cr in FY18

It was expected that more than 70% of the delinquent portfolio would be written off in FY18

Microfinance lenders in India might have to take a hit of more than Rs 4,100 crore as they would have to write off about 70 per cent of their non-performing assets (NPAs) in 2018.

Rohit Inamdar, group head financial sector ratings, ICRA, said loans worth Rs 5,900 crore were in the 90-day dues bucket. Based on the recovery trends from delinquent buckets, it was expected that more than 70 per cent of the delinquent portfolio would be written off in FY18. Consequently, the likely credit costs — amount to be set aside for delinquent loans — for the industry was expected to be in the range of 5.5-8 per cent for FY18, Inamdar said.

The extent of impact will differ among microfinance institutions (MFIs) based on the share of their portfolio in impacted geographies, their client engagement, field discipline, collection frequency, technology systems, appraisal mechanisms and pro-activeness in curtailing operations in overheated areas.
 

Increased disbursements in five months of 2017-18 have helped in expanding credit portfolio and reducing the zero-day past due delinquency percentage from a peak of 23.6 per cent in February 2017 to 16.3 per cent as on August 31, 2017. 

However, the 90-day delinquencies largely remained stable over the last three months, indicating that most of the clients were paying only one instalment at a time. Thus, delinquency percentage continued to be relatively sticky in the 90-day bucket at 10.9 per cent as on August 31, 2017 (11.9 per cent as on June 30, 2017).
 

Over the medium term, MFIs would have to address the long-standing concerns in the sector, including accurate assessment of repayment capacity, maintaining client connect, overleveraging, multiple lending, ring-leaders and commission agents.