Profitability of NBFC-MFIs, in terms of return on managed assets, is expected to improve to 2.7-3.0 per cent in FY24 and 3.2-3.5 per cent in FY25, from 2.1 per cent in FY23, led by an increase in margins, according to ICRA.
Margins have improved on the back of growing share of the new portfolio originated at higher rates, post the implementation of the new MFI regulations in FY23, combined with lower credit costs.
“With the revised regulatory framework in place, NBFC-MFIs raised their lending rates in FY23. With the full impact of the higher yields yet to be reflected, ICRA expects further improvement in the NIMs in FY24. This coupled with expected reduction in credit cost would help the industry witness improvement in return on average manged assets by 60-90 bps in FY24,” said Sachin Sachdeva, Vice-President and Sector Head, Financial Sector Ratings, ICRA.
However, AUM of NBFC-MFIs, which grew 38 per cent in FY23, is expected to witness relatively slower growth of 24-26 per cent in FY24 and 23-25 per cent in FY25.
As such, NBFC-MFIs saw the highest AUM growth in FY23 compared with other lenders, including banks. This resulted in their overall share in microfinance rising to around 40 per cent as of March 2023 from 35 per cent a year-ago. On the other hand, the share of banks declined to 34 per cent from 40 per cent.
“This was primarily driven by a sharp increase in the loan outstanding per borrower. NBFC-MFIs reported a note-worthy increase in the average number of accounts per unique borrower, which indicates that more entities are chasing the same set of borrowers. Thus, the industry needs to remain cautious on borrowers’ indebtedness level,” Sachdeva said.
As of now, the asset quality has improved with 90+ days-past-due (dpd) book, which had touched a peak of 6.2 per cent in September 2022, falling thereon to 2.5 per cent as of March 2023 even after adjusting for slippages from the restructured book.
Driven by write-offs, recoveries and sale of delinquent portfolios to ARCs, ICRA expects delinquencies to decline by 40-60 bps to around 1.9-2.1 per cent in the near-term.