Defaults rising in MFI loan book post demonetisation
Post demonetisation, the delinquencies in microfinance institutions (MFI) loan books are rising. Ratings agency ICRA recently downgraded its outlook on two prominent MFIs to negative from stable, mainly due to limited currency supply and disruption in borrower cash flows, which hampered overall the collection efficiency of these lenders.
 
ICRA downgraded to negative from stable its outlook on Janalakshmi Financial Services Ltd (JFSL), which has a presence in 222 cities across 17 states and two Union Territories. Janalakshmi has asset under management of Rs12,416 crore and had registered a high compound growth of 130% over the past four years. 
 
"The revision in outlook factors in the adverse impact of demonetisation on JFSL’s asset quality, where overall collections efficiency is affected by the limited currency supply, disruption in borrower cash flows, and political intervention in certain states, namely, Uttar Pradesh, Maharashtra and Madhya Pradesh. The company’s collection efficiency dipped to 78% in January 2017, from about 98% in September 2016. The company’s disbursements were also impacted because of the limited availability of currency; thus, the disbursements moderated to about 55% (November 2016), 31% (December 2016) and 60% (January 2017) of its average disbursements for seven months of FY2017," the ratings agency says.
 
Similarly, ICRA cut its outlook on Satin Creditcare Network Ltd’s (SCNL) debentures, to negative from stable, citing elevated financial risk profile post demonetisation that reflects in the lender's deteriorating asset quality. In a statement, the ratings agency says, "Collection efficiency in SCNL’s loan portfolio dropped to 78% for the period November 2016 to February 2017 from over 99% (pre-demonetisation). The dip in collection performance was due to limited currency supply, disruption in borrowers’ cash flows and political intervention in certain districts of Uttar Pradesh, Madhya Pradesh and Maharashtra."
 
However, ICRA found improvement in SCNL's collection efficiency during February. "The collection efficiency in February was at 89.6 per cent. But a significant recovery from overdue loans, especially 60 days past due (dpd) could be protracted due to the marginal borrower profile and the unsecured nature of the microfinance loans."
 
Earlier in January, the ratings agency had stated that it sees a substantial drop in MFI profits during FY2017-18, mainly due to rise in credit and operating costs and fall in collections. "The Rs55,000 crore sector (MFIs and non-bank finance companies) had displayed strong asset quality till recently," said ICRA, "with the share of overdue loans lower than one per cent as on 30 September 2016. That number for MFIs had increased to 19% as on 31 December 2016."
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    p venkateswara

    3 years ago

    people are loosing confidence in banks, now people are slowly holding money & circulating among themselves. due to higher bank charges, shortage of money in ATMs, etc

    S Santhanam

    3 years ago

    Demonetisation is only a ruse to cover the shortcomings of these mFIs and some more. Fundamentaly these mFIs have spent more in technology upgradation as rate of obsolescence is very high. HR related cost has also increased with high rate of attrition of trained staff. Above all, focus of most of the mFIs continues to be in reaching out to more numbers of new clients instead of offering umbrella of services to the loyal and faithful customers. The rate growth of the owners private wealth is much higher than the rate of economic growth of their customers.

    REPLY

    Aseem Pant

    In Reply to S Santhanam 3 years ago

    Point well taken. But can a stable employee base also imply possible evergreening?

    Gurudutt Mundkur

    In Reply to S Santhanam 3 years ago

    Mr Santhanam is absolutely right. Any set-back is attributed to demonetisation. Were their not shortcomings before November 8, 2016? All failures are shoved on that Nov 8th announcement. People will soon say it that same announcement that causes the severe heat, lack or rain and poor crops.

    Rashmi Gala

    3 years ago

    In short term the collection efficiency may have gone down. But habits of the borrowers of paying back loans in time does not get deteriorated . And small borrowers have shown tremendous capability of adjusting to digital payments and use of banking channels. So in long run MFI may have to bring down rates but business will go strong.

    Centre probing 3 e-commerce firms for FEMA violation
    The Indian government, up to February this year, is probing three e-commerce companies for possible violation of the Foreign Exchange Management Act (FEMA), Parliament was informed on Monday.
     
    "The government has initiated investigations against a number of e-commerce companies during the last three years and the current year for possible contraventions of (FEMA), 1999," Commerce Minister Nirmala Sitharaman said replying to a question in the Lok Sabha.
     
    Three cases are being investigated under FEMA till February of this calendar year, she said. 
     
    While four cases were initiated for investigation in 2014, six cases were started in 2015 and five in 2016, she added.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • User 

    Telecom slips on merger announcements, Idea sheds 10%
    Mumbai, Telecom sector slipped, with Idea Cellular's stocks plunging by almost ten per cent on Monday -- a day of major merger announcements in the telecom space.
     
    At closing, the scrip of the telecom major was down by 9.55 per cent to Rs 97.60 per share at the BSE, emerging as the worst loser of the day.
     
    Overall, the S&P BSE telecom index, which opened at 1,268.30 points, closed at 1,251.19 -- down 13.99 points or 1.11 per cent.
     
    Telecom giant Bharti Airtel remained a gainer, with its shares up 0.79 per cent to Rs 349.45 per scrip at the BSE. On the other hand, Reliance Communications was down by 0.26 per cent to Rs 38.15 per share.
     
    In one of the biggest mergers in the telecom space, Vodafone India and Aditya Birla Group-promoted Idea Cellular announced the much-awaited amalgamation, following which Vodafone will hold 45.1 per cent in the combined company.
     
    "The market did not take the news (of Idea Cellular merger with Vodafone India) well with Idea shares losing 10 per cent in value and closing the day at Rs 97.60. Analysts were unhappy with the structure of the deal as the joint entity will continue to have high debt levels," Vijay Singhania, Founder and Director of brokerage firm Trade Smart Online, told IANS.
     
    "The merger is not witnessing any cash inflows from either companies. Besides, the deal price is around the current price of joint entity as reported in the exchange disclosure. This leaves little room for appreciation," Singhania noted.
     
    In another announcement, Reliance Communications has received approval of the Competition Commission of India (CCI) for the proposed merger with Aircel.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • User 

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone