RBI’s transfer to permit small finance banks (SFBs) to categorise loans to small microfinance establishments (MFIs) (with a mortgage guide of sub-₹500 crore) as precedence sector advances will result in an incremental funding of as much as ₹3,000 crore to the MFIs, as per Acuite Rankings.
“While scheduled commercial banks have funded large MFIs, they have been reluctant to sanction loans to those smaller in size,” it stated in a report.
“However, SFBs understand the small MFI segment in a better way since the majority of the SFBs have started their operations as a small MFI,” it stated.
“We expect that this measure will lead to an incremental funding to the sub-₹500 crore MFI segment to an extent of ₹2000-₹3000 crore over FY22 and therefore, provide support to the liquidity position of these players,” it added.
“Further, the cost of the incremental borrowings is expected to be less as SFBs will be able to access SLTRO funds at a repo rate of 4% and up to a tenure of three years. Consequently, the profitability pressures in the small MFI segment may also get partly offset,” it added.
It stated RBI’s newest announcement on SLTRO of ₹10,000 crore for SFBs will guarantee greater direct disbursements to microfinance debtors and higher funding entry for the smaller MFIs.
The contemporary restructuring window for loans as much as ₹25 crore may also help the MFI sector in assuaging the extra asset-quality stress emanating from COVID 2.0, it stated.
Acuité stated it expects 90-day delinquencies to extend at the very least by 30% by June 21 even when the pandemic’s depth begins tapering down from the center of Could and may greater than double if the native lockdowns proceed until the tip of Q1FY22.