Growth for MFIs, SFBs, banks likely to be 25-30% in FY2018
As for growth outlook, portfolio growth for the sector (MFI, SFBs and banks) is likely to be 25-30% in FY2018. Further, MFIs are likely to focus on lower branch addition and servicing of existing clients rather than adding new clients.
Nearly 70-75% of the portfolio delinquent more than 90 days is likely to be written off, therefore mean credit costs for the industry as a whole are likely to be in the range of 5.5-8% for FY2018. The extent of impact will differ across MFIs based on share of portfolio in impacted geographies, their client connect, field discipline, collection frequency, IT systems and appraisal mechanisms and proactiveness to curtail operations in overheated areas. Credit costs could vary from 2% for entities which were impacted to a limited extent because of demonetization to around 18% for entities which had greater impact. Further, concerns on over-leveraging, dilution of discipline, politically sensitive nature of clients as well as various states announcing farm loan waivers, have increased therefore, collection efficiencies are unlikely to come back to pre-demonetization levels of over 99% in the medium term. The steady state credit costs are likely to be 2.5-3.5%.
Operating expenses for MFIs are likely to increase owing to investments to be made on IT and collections infrastructure by most players.