Growth for MFIs, SFBs, banks likely to be 25-30% in FY2018

Banking Frontiers - - Research Notes - Mfis - Mehul@bank­ingfron­tiers.com

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.

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