MFIs' loan book to grow at 30-35% a year: Icra

Need capital injection worth Rs 5,500 cr

Microfinance institutions (MFIs) in India are slowly getting past their crisis days in Andhra Pradesh. Following a round of consolidation in the aftermath of the 2010 crisis, MFIs are looking at a sustainable growth over the medium term. To support asset expansion, the MFIs will need capital injection up to Rs 5,500 crore in the medium-term, according to ratings agency Icra.

The potential microfinance market size is pegged at Rs 1.4 lakh crore-2.5 lakh crore, compared to the current size of Rs 60,000 crore (as on March 31). This captures the lending activity of MFIs and the self-help groups (SHG) funded under the bank linkage programme.

Overall, the microfinance market saw a growth of 14 per cent in 2012-13. The MFIs reported 26 per cent growth at Rs 22,000 crore and SHG-bank linkage programmes grew eight per cent at Rs 39,400 crore.

The external equity requirement in the medium term was relatively large at Rs 4,000-5,500 crore, according to Icra.

MFIs could grow at an annualised pace of 30-35 per cent over the next three years. This assumes a 10-15 per cent decline in portfolio of the Andhra Pradesh-based MFIs admitted to corporate debt restructuring (CDR) and 40-50 per cent growth for the other MFIs on the back of improved credit availability.

Icra said lenders may incur losses to the tune of Rs 2,700 crore on loans extended to the Andhra Pradesh-based MFIs, as recovery from borrowers in the state remains insignificant.

While there is greater visibility on improvement in credit flow from banks, funding costs for the sector remains high (at 13.5 per cent for the larger MFIs and 15-15.5 per cent for the small to medium ones).

The asset quality indicators of MFIs in states other than Andhra Pradesh are superior to those of SHG-bank linkage programmes, which continues to report deterioration in asset quality indicators — with gross non-performing asset of 7.08 per cent as on March 31 against 6.09 per cent in the year before.

Credit costs for MFIs could rise from current low levels (0.4 per cent for non-Andhra Pradesh MFIs) due to the high growth rates, expansion in newer geographies, vulnerable borrower profile and high employee attrition rate (30-40 per cent) for the industry.