Covid 2.0 Unleashes Credit Stress on MFI, Small NBFC

The impact of the second Covid wave raises concerns about microfinance (MFI) and the recovery of the small NBFC sector, which was already fighting the rise in credit stress and AUM decline in 2009.

Therefore, of the 13 issuer downgrades by credit rating agencies in the financial sector in the first quarter of 2010, 10 issuers are small MFIs engaged in providing unsecured MSME loans, personal loans, and vehicle loans. This is NBFC.

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According to the Acuite Ratings report, collection efficiency, which was expected to recover by more than 90% in March 2009, dropped to 65-85% levels in the first quarter of 2010.

“In addition to the smaller collections, the debt collection capabilities of these smaller players were affected by the fact that an estimated 50 percent of the players (who have a loan portfolio of 500 chlores or more) received sufficient funding. . “

“Relief measures recently provided by the government and RBI are expected to support the continuation of credit flow to borrowers in microfinance and MSME, while strengthening liquidity bailouts to smaller lenders.”

He added that the impact of Covid’s second wave is more pronounced in the collection of microfinance and motorcycle loan asset classes compared to the first cycle.

“Motorcycles as an asset class worked better in the first wave of blockade, but were more impacted in the second cycle due to the spread of pandemics in rural areas and stress on borrowers’ cash flow. Losses and high medical costs, “said Suman Chowdhury, Chief Analyst, Acuite Ratings & Research.

“Given the intermittent nature of economic activity after the spread of Covid in the first quarter of 2010, the sources of income for borrowers, especially those served by smaller NBFCs or MFIs, were severely affected. Exacerbates the asset quality stress of these lenders. “

However, the report states that the lack of moratorium makes borrowers stress more apparent in this cycle, and along with a lack of sufficient funding, reduced liquidity and thus minor credit quality deterioration of NBFC and MFI is largely avoided. I added that.

Covid 2.0 Unleashes Credit Stress on MFI, Small NBFC

Source link Covid 2.0 Unleashes Credit Stress on MFI, Small NBFC

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