Micro finance institution may face challenges in loan recoveries if more states look at imposing mini-lockdowns like Maharashtra amid a surge in COVID-19 cases, according to a report. Maharashtra, which is seeing the maximum number of cases, has announced the most stringent restriction – a mini-lockdown through April 30. Many other states have also announced night curfews and weekend lockdowns.
“If more states follow Maharashtra and impose mini-lockdowns of their own to curb the pandemic, and these continue for an extended period, PAR recovery would be affected,” Crisil Ratings said in a report. Maharashtra is among the top five states in terms of microfinance loans, with assets under management of around Rs 16,700 crore as of December 2020, which amounts to around 7 per cent of all microfinance loans. Non-banking finance company microfinanciers account for 40 per cent, or Rs 6,700 crore, of this pie. Nonetheless, it continues to remain high compared to pre-pandemic levels, it said.
While NBFC-MFIs are better prepared to deal with the situation – because of their experience with the lockdowns of last fiscal, and by weathering other storms of the past – their ability to manage asset quality and maintain healthy collections will bear watching, the report said.
The agency said it is monitoring the situation and will take necessary action based on developments and their impact on collections, earnings profile and capitalisation metrics.