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Note Ban Shrinks Securitisation in MFI by 79% in H2 of FY17'

By Religare

The impact of demonetisation on microfinance securitisation volumes has led to a slump of 79 per cent in the second half of FY17'.

Note Ban Shrinks Securitisation in MFI by 79% in H2 of FY17'

"The decline is to the tune of 79 per cent in the second half of the FY17' at Rs 1,650 crore compared to Rs 8,000 crore in the six months of the previous year," ICRA Head-Structured Finance, Vibhor Mittal told media.

The bold demonetisation measure was announced in November, 2016.

"After two years of rapid growth, volumes for micro loans securitisation transactions witnessed a trend reversal with around 20 per cent drop observed for the full 2016-17," a recent ICRA study said.

MFIs (including some erstwhile MFIs - now small Finance Banks) raised nearly Rs 5,500 crore through the securitisation route in the first six months of FY17'.

However, as per ICRA estimates only around Rs 1,650 crore was raised in the second half of the fiscal, resulting in total securitisation volumes of around Rs 7,150 crore for the full year.

In comparison, MFI securitisation volumes had increased by 80 per cent to around Rs 9,000 crore in fiscal 2016.

"The dip in micro loan securitisation volumes is primarily due to the impact of the demonetisation event on the portfolio of most MFIs," Mittal said.

"Investors also adopted a wait and watch approach for this asset class on the back of a rapid increase in the portfolio at risk (PAR) numbers in the softer delinquency buckets, and the uncertainty around the portfolio performance going forward," Mittal said.

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