NBFC-MFIs’ AUM to grow 25-30 per cent in FY24, credit profile to strengthen: Crisil

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Assets under management of NBFC MFIs are expected to grow between 25 and 30 percent in FY24 supported by improved asset quality, continued momentum in economic activity, and increased profitability, supported by higher net interest margins.

“The confluence of these factors bodes well for the credit profiles of NBFC MFIs,” Crisil Ratings said in a note, adding that growth over the last two fiscal years has been driven by pent-up demand for credit and a 10-15 percent increase in credit profiles. Increase in the volume of payments tickets.

the microfinance sector Assets under management are estimated at Rs. 3.4 crore as of 31st March, with MFIs – NBFC outperforms microfinance banks, universal banks and other lenders with assets under management of Rs 1.3 crore. The market share of MFIs increased 700 basis points in 33 months to 38 percent as of December 2022, from 31 percent in March 2020.

The top five states have more than half of the industry’s assets under management, with Bihar which holds the largest share at 13 percent, followed by Tamil Nadu by 11 percent and Karnataka by 10 percent.

Asset quality improves

Growth in assets under management was accompanied by an improvement in asset quality, as evidenced by the decline in stressed assets (total non-performing assets + restructured assets) to around 6 percent in December 2022 from a peak of 13 percent in September 2021, and to an estimated 3 percent. percent as of March 2023.

NBFC-MFIs have been cleaned up Books on loans affected by the pandemic Through write-offs and sales to asset rebuilding companies. This, along with lower slippage in recent builds, has helped lower their stressed asset level.

Overall profitability, as measured by return on assets under management, is expected to exceed 3 percent in FY24, compared to 1.5 to 2.0 percent in FY23 and around 1 percent in FY21 and FY22. This will be achieved by approving Risk-based pricing of loans and improved credit underwriting, which will lead to higher margins and lower credit costs, also supported by an increase in average loan yield of 150-250 basis points over the past 12 months.

Credit costs for MFIs have peaked at 4-5 percent over the past two fiscal years, due to challenges associated with the pandemic. As the collection efficiency of loans granted over the past 12-15 months has been strong at 98-99 per cent, credit costs have begun to stabilize and have decreased to 3-3.5 per cent as of December 2022 and are expected to decrease to 2.0-2.5 per cent cents For fiscal year ’23 as a whole.

This reflects the recovery of cash flows for primary borrowers after the liquidity constraints caused by the pandemic. Continuing to enhance underwriting practices with a comprehensive credit bureau report also helped.