Mumbai: The rapid rise in delinquencies post demonetisation has led to a sharp drop in micro finance securitisation volumes as investors turned cautious and adopted a wait and watch approach towards micro finance assets. Micro finance institutions (MFI’s) raised nearly Rs 5,500 crore through the securitisation route in the first six months of fiscal 2017.
However, as per ICRA estimates, only around Rs 1,650 crore was raised in the second half of the fiscal, resulting in total securitisation volumes of around Rs 7,150 crore for the full year, a 20 per cent drop from Rs 9,000 crores reported in FY16.
The impact of demonetisation was higher for these micro finance institutions because of their higher reliance on cash for both collection and disbursements. According to ICRA, the unavailability of legal tender with the borrower resulted in loan repayments being severely impacted. Additionally, local political interference and rumors of loan waiver in some areas of the country led to further disruption in collection process. This was primarily seen in states where local body or assembly elections were due.
“The dip in micro loan securitisation volumes is primarily due to the impact of the demonetisation event on the portfolio of most MFIs. Investors also adopted a wait and watch approach for this asset class on the back of a rapid increase in the portfolio at risk (PAR) numbers in the softer delinquency buckets, and the uncertainty around the portfolio performance going forward,” said Vibhor Mittal, head of structured finance at ICRA Limited.
Post demonetisation, there has also been a notable slowdown in loan disbursements. This according to ICRA was due to lack of currency availability in the initial period, and also on account of MFIs becoming more cautious while offering incremental loans, especially in geographies where collections are low. Due to sharp decline in disbursements, additional funding requirement for MFIs also reduced.
“This further took a toll on securitisation volumes, as around 25 per cent of incremental funding requirement of MFIs was being met through the securitisation route,” the rating agency noted.
