Emerging from the shock of the pandemic period, the net profit of listed microfinance institutions (MFIs) and MFI subsidiaries of listed firms more than doubled year-on-year (YoY) to Rs 508 crore in the third quarter ended December 2022. The buoyant interest income – 25 per cent YoY and decline in credit costs helped non-banking finance corporation (NBFC) MFIs to report a healthy bottom line.
Sequentially, the pace of growth in net profit was slower compared with YoY growth. It stood at 16.7 per cent over Rs 435 crore posted in the second quarter ended September 2022 (Q2FY23).
The interest income expanded by 25 per cent YoY to Rs 2,414 crore and sequentially, it rose 9.7 per cent from Rs 2,201 crore in the second quarter ended September 2022 (Q2FY23). The uptick in credit offtake, rising rates, and improved recovery helped MFIs push interest income. The finance costs also rose but the pace was less than the rise in interest income. The finance costs rose 12.9 per cent YoY to Rs 939 crore and sequentially 12.7 per cent from Rs 833 crore in Q2FY23.
Their assets under management (AUM) grew by 23.19 per cent YoY to Rs 51,118 crore at the end of December 2022. Sequentially they were up 9.18 from Rs 46,816 crore, an analysis showed.
According to Sa-Dhan, a Reserve Bank of India (RBI)-recognised self-regulatory organisation (SRO) for MFIs, the portfolio of NBFC-MFIs rose by 43.37 per cent YoY to Rs 1.29 trillion at end of December 2022.
The credit costs, the indicator of asset quality and obligation to set aside money provision, declined by 17.5 per cent YoY to Rs 292 crore. However, they rose sequentially 4.6 per cent from Rs 279 crore in Q2FY23.
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India Ratings (Ind-Ra), in a review of MFIs, said Covid-19 has extracted a heavy toll on the sector. However, most of the impact has been absorbed in the nine months ended December 2022 (9MFY23).
The portfolio at risk (PAR), where the repayment of instalments of client loans remains due for more than specified days, has shown improvement. The PAR for 90 plus days of MFIs improved to 1.76 per cent in Q3FY23 from 2.96 per cent in Q3FY22 and sequentially from to 2.27 per cent in Q2FY23, according to Sa-Dhan data.
Given the changing climate for growth, Ind-Ra revised the outlook on the microfinance sector to 'improving' from 'neutral' and maintained the ratings Outlook at 'stable' for FY24. The portfolio of NBFC-MFIs is expected to continue the growth between 20 to -30 per cent YoY in FY23-FY24, the rating agency said.
The two key risks -- inflation and elections – may impact cash flows of a segment of borrowers over the next 12-18 months.