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As lockdown restrictions have been lifted gradually across the country, collections by microfinance institutions rebounded 70 per cent to 75 per cent in July from zero in April, according to Crisil.
“Collections had wallowed in single digit through May because of the moratorium granted by MFIs to their borrowers on an opt-out basis, but sprang to 55 per cent to 60 per cent in June and continues to improve,” it said in a statement on Friday.
Krishnan Sitaraman, Senior Director, Crisil Ratings, noted that the lifting of lockdown-related restrictions and resumption of local economic activity was faster in rural and semi-urban areas.
“Consequently, MFIs with greater presence in these areas have reported better collection efficiency,” he said, adding that among the States with the largest microfinance presence, Karnataka and Bihar reported better collections because they managed to control the spread of Covidin rural areas so far.
“However, Tamil Nadu and Maharashtra, which were facing the brunt of the pandemic and were observing more stringent and localised lockdowns, saw sluggish collections,” he said.
“While the bounce-back has been faster than that envisaged earlier, improving it to the pre-pandemic levels of 98 per cent to 99 per cent will be an important monitorable from an asset quality perspective,” Crisil further said, adding that MFIs are likely to focus on raising additional equity capital over the near to medium term as they create a buffer for potential pandemic-related credit costs.
Moratorium
Liquidity levels for most MFIs have also improved since April, it said, adding that most of them received moratorium from banks and, hence, had low debt repaymentswhile disbursements were negligible.
According to Crisil, MFIs have also raised nearly ₹2,000 crore through bond issuances under the targeted long-term repo operations and partial credit guarantee schemes.
It warned that given the material gap between current and pre-pandemic collection levels, there is a risk of increase in credit losses and its potential impact on capitalisation metrics after the moratorium ends this month.
“The applicability and benefit to MFIs emanating from the recent resolution framework for Covid-19 stress is also uncertain,” it said, adding that due to its unsecured nature, the underlying impact will be evident by December 2020.
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