Odisha may see short-term spike in MFI delinquencies

Chennai: Delinquency levels in microfinance loans could go up in Odisha in the aftermath of the worst cyclone in 20 years seen by the state. Though the credit discipline is high in Odisha, the state had witnessed a sharp rise in Gross Loan Portfolio in the past two years and this is a cause of worry for the sector.

“We would see a rise in PAR-30 delinquencies in Odisha for the short-term. In case of Kerala too, we had seen such a surge in delinquencies post-floods. But things got back to shape without much delay. We believe that same will be the case with Odisha,” said Supreeta Nijjar, Vice President, Financial Sctor Rating, ICRA.

PAR 30 is Portfolio At Risk from principal or repayment overdue by 30 days.

Industry watchers are relying on the credit behaviour of the state in recent years to conclude that the impact on MFIs would be minimal.

“The state faced a similar cyclone eight months ago, but notably the PAR>30 portfolio remained stable during Q2FY19 and Q3FY19 at 0.48 per cent and 0.55 per cent, respectively, against 0.49 per cent in Q1FY19,’ finds ICICI Securities.

Further, in the past, microfinance institutions (MFIs) have successfully navigated through such events. The events do create some panic in the market, but MFIs have built their business models after factoring in the impact of such events, finds ICICI Securities. Extending emergency loans to good borrowers, giving certain payment holidays, extending repayment periods and meeting borrowers are some of the methods frequently used by MFIs during crises. Odisha cyclone is no different, but with well-defined strategy and past experience, write-offs could become negligible, it said.

However, the fast-paced growth of GLP, or outstanding principal, in Odisha is a matter of concern. With a GLP of Rs 6,800 crore at the end of Q3FY19, Odisha is the second largest state for NBFC-MFIs. Odisha, along with the other eastern states had witnessed a fast growth in GLP in the past two years. As these states were least affected by demonetisation, the NBFC-MFIs started aggressively expanding in the region.

The cyclone is the first major event in the east after it became the top region in terms of GLP. Moreover, due to the liquidity crisis in the NBFC sector, the outlook for the next six months is sluggish in terms of incremental disbursements.

Most of the MFIs prefer to keep highly liquid balance sheet for better cash flow management in case systemic liquidity dries up in the near term. The liquidity situation may force NBFC-MFIs to moderate their growth plan, which would make it difficult to provide emergency loans to needy borrowers in Odisha.

Among the large NBFC-MFIs, Bharat Financial Inclusion Ltd has 16 per cent exposure in Odisha. Out of its total AUM of Rs 16,700 crore, Odisha’s contribution is Rs 2,700 crore, L&T Finance Holdings has 11 per cent exposure in Odisha and Satin Creditcare Network Ltd, 5 per cent.