Accordingly, out of 13 issuer downgrades by credit ranking companies throughout Q1FY22 within the monetary sector, ten issuers are smaller MFI and NBFCs engaged in offering unsecured MSME loans, private and automobile loans.
A report by Acuite Ratings mentioned that assortment efficiencies which had been seen recovering above 90 per cent in Mar-21 have dropped to between 65-85 per cent ranges throughout Q1FY22.
“Besides the lower collections, the debt raising ability of these smaller players has been impacted with an estimated 50 per cent of players (having a loan portfolio of more than 500 crore) having received adequate funds.”
“Relief measures provided by the government and RBI recently is expected to support the continuity of credit flow to microfinance and MSME borrowers while also enhance liquidity relief to the smaller lenders.”
Furthermore, it mentioned that influence of second wave of Covid has been extra pronounced on collections within the asset lessons of microfinance and two-wheeler loans as in comparison with the primary cycle.
“Even as two-wheeler as an asset class fared better during the first wave of lockdowns, the impact has been greater during the second cycle on account of the spread of the pandemic in rural areas and the stress on the borrowers’ cash flows due to loss of income as well as high medical expenses,” mentioned Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research.
“Given the intermittent nature of economic activities in the wake of Covid spread in Q1FY22, the borrower income streams, particularly of those serviced by smaller NBFCs or MFIs have been severely impacted, thereby exacerbating the asset quality stress for these lenders.”
However, the report added that absence of moratorium has made the borrower stress extra seen on this cycle and together with lack of enough funding, the deterioration in liquidity and subsequently credit high quality for smaller NBFCs and MFIs was virtually inevitable.