Credit ratings agency, Crisil Ratings in its latest report has said that asset quality of micro-finance institutions (MFIs) comprising small finance banks as well as non-bank MFIs has shrugged off the impact of government's demonetization move and stabilized since June 2017. It highlighted that portfolio delinquencies, for a representative set of MFIs, measured in terms of 30 and 60 days past due (dpd), have improved to 5.6 percent and 5.3 percent, respectively, as on December 2017, as compared to 7.6 percent and 6.8 percent, respectively, as on June 2017.
The rating agency explained that asset quality performance has improved, as evidenced by reducing portfolio delinquencies and noted that cumulative collection efficiencies have increased to over 99 percent for disbursements since April 2017. Besides, it said that high degree of investor support was reflected in the significant equity and debt raised after demonetization. It also pointed out that the reduction in delinquencies shows that borrowers are paying more than one instalment and there is recovery in the higher-delinquency buckets. However, it noted that the weakening in asset quality was not pervasive post demonetization.
As per the report, asset quality of MFIs in Tamil Nadu, Kerala, Odisha, West Bengal and Bihar remained largely resilient despite demonetisation and its outcome, and these states continue to show strong collection performance with 30 dpd staying below 2 percent. It also stated that improvement in asset quality performance in Uttar Pradesh, Maharashtra and Karnataka has been significant, which were affected the most due to demonetization. It noted that strong investor appetite for both equity and debt capital market issuances have helped MFIs tide over the challenges. Since demonetisation, MFIs have raised around Rs 4,000 crore of equity and Rs 7,000 crore of debt.