MFIs’ assets under management is expected to improve by 18-22% in FY23: ICRA

A long-term observatory for non-banking financial companies-microfinance institutions (NBFC-MFIs) is likely to remain robust, helmed by the fact that the growth in issuances is expected to have continued in Q3 FY2022, after the revival in Q2 FY2022, the firm expects.

Indian independent and professional investment information and credit rating agency, ICRA on Monday modified the FY2022 growth outlook for assets under management (AUM) of NBFC-MFIs to 12-14 per cent but it anticipates it to improve to 18-22 per cent in the financial year 2022-23.

A long-term observatory for non-banking financial companies-microfinance institutions (NBFC-MFIs) is likely to remain robust, helmed by the fact that the growth in issuances is expected to have continued in Q3 FY2022, after the revival in Q2 FY2022, the firm expects.

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Disbursements dropped immensely and the growth plunged in Q1 FY2022 due to the outbreak of the second wave of the Corona Pandemic. Disbursements gathered again in Q2 FY2022, driving the assets under management (AUM) of NBFC-MFIs to around 5% (annualised) in H1 FY2022. Microfinance- small finance banks (SFBs) in FY2021 and H1 FY2022 undergo the same problem, though the growth rates observed by them in the on-book portfolio was slightly higher than that observed by NBFC-MFIs.

Sachin Sachdeva, Vice President and Sector Head, Financial Sector Ratings, ICRA, says, “The disruptions caused by the second wave impacted the AUM growth of the industry in H1 FY2022 as the movement of people was greatly hindered and the entities focused on collections instead of disbursements.”

“While regulatory tightening in the form of daily recognition of non-performing advances (NPAs) and the upgradation on the full recovery of overdue could impact the reported NPA numbers, we expect the over 90 dpd (days past decline) to decline slightly in H2 FY2022, though it would remain elevated and would also depend on the impact of the ongoing third wave,” he added.

Microfinance institutions (MFIs) are financial companies that provide small loans to people who do not have any access to banking facilities. The definition of “small loans” varies between countries.