The trouble for the microfinance (MFIs) as well as smaller NBFCs seems to be just not leesening as the effect of the second Covid wave has raised concerns with respect to their revival. It is to noted that these sectors alreadt faced declining AUMs as well as saw high credit stress in the previous fiscal year.
Accordingly, as per credit rating downgrades effected in the Q1 period of FY22, of the total 13 issuer downgrades 10 pertain to smaller MFIs and NBFC that are into offering unsecured MSME loans, personal and vehicle loans.
Acuite Ratings report notes that collection efficiencies which improved above 90 per cent in Mar-21 have fallen to between 65-85 per cent levels during Q1FY22.
"Besides the lower collections, the debt raising ability of these smaller players has been impacted with an estimated 50 per cent of players (having a loan portfolio of more than 500 crore) having received adequate funds."
"Relief measures provided by the government and RBI recently is expected to support the continuity of credit flow to microfinance and MSME borrowers while also enhance liquidity relief to the smaller lenders."
Further, it mentioned that impact of second wave of Covid has been severe in case of collections in the asset classes of microfinance and two-wheeler loans as against the first cycle.
"Even as two-wheeler as an asset class fared better during the first wave of lockdowns, the impact has been greater during the second cycle on account of the spread of the pandemic in rural areas and the stress on the borrowers' cash flows due to loss of income as well as high medical expenses," said Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research.
"Given the intermittent nature of economic activities in the wake of Covid spread in Q1FY22, the borrower income streams, particularly of those serviced by smaller NBFCs or MFIs have been severely impacted, thereby exacerbating the asset quality stress for these lenders."
Nonetheless, the report provided that with moratorium no more available the borrower stress is all the more visible now in this cycle.
With Pti Inputs