Timely equity infusion props up MFI's capitalisation: Icra

Mumbai, Dec 7 (PTI) Timely equity infusion in mostmicro finance institutions (MFIs) has helped in improvement oftheir asset quality even as delinqu...

Mumbai, Dec 7 (PTI) Timely equity infusion in mostmicro finance institutions (MFIs) has helped in improvement oftheir asset quality even as delinquencies pressures continuesto persist, says a report.

The sector received a capital infusions of Rs 1,500crore in the first half of FY18 as against Rs 4,700 crore inFY17 indicating continued support for the MFIs and investorconfidence in the growth potential of the sector.

"The shock of a sharp and sudden dip in asset qualitypost-demonetisation has so far been absorbed by equityinfusion into most MFIs, the pain is not fully over yet asreflected by the analysis of collection efficiencies,delinquencies, profitability, capitalisation and solvencyposition during the first of FY18," Icra said in a report heretoday.

Given the MFIs' growth targets of 25-35 per cent overthe next three years and the expected higher provisioning overthe next three-four quarters, the rating agency retains thecapital requirement estimates of about Rs 7,000-9,000 croretill FY 2020.

It said the overall collection efficiency in themicro finance sector continued to improve, increasing to 94percent in September 2017 from a low of 87 per cent in December2016, the report said.

An encouraging trend is that the improvement was widespread across almost all affected districts except theVidarbha region of Maharashtra and some districts of MadhyaPradesh, it said.

Several MFI players reported over 98 per centcollection efficiencies for the loans disbursed after January2017.

"Consequently, fresh slippage of loans has beenarrested," the report said.

The rating agency group head (financial sectorratings), Karthik Srinivasan, said increased disbursements infirst half have helped in expanding the portfolio and reducingthe 0 days past due delinquency (dpd) percentage from the peakof 23.6 per cent in February 2017 to 17.9 per cent as onSeptember 30, 2017.

The report said in the past joint liability group(JLG)mechanism was considered to be a mitigant against the assetquality related concerns for the sector and the group membersexpressed willingness to repay on each other's behalf in caseof default by any member.

However, it has been observed that while groupguarantee works well in case of temporary cash flowmismatches, in events of prolonged stress situations impactinga large number of borrowers, the members may not be able tohonour the group guarantee, the report added. PTI HVNSK.

This is unedited, unformatted feed from the Press Trust of India wire.

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