According to the rating agency, a section of joint liability group (JLG) borrowers could be overleveraged. Moreover, overcrowding of MFIs in some highly penetrated states may adversely affect MFIs’ asset quality, especially with low growth in new-to-microfinance borrowers, it saif.
The agency expects MFI borrowers to reprioritise their expenses on account of a cash flow mismatch in the next few weeks. This would lead to an increase in one-month overdues of many MFIs. If money flow does not fully normalise by 4QFY17, Tier 1 capital of few MFIs could near regulatory minimum levels.
The agency opined that a typical two-income JLG borrower household could service Rs 50,000-Rs 60,000 of debt in over two years. The peak leverage of a section of JLG borrowers is approaching these levels. In 1HFY17, the level of the real income growth of rural borrowers was almost the same as the rural consumer price index, indicating that the ticket size growth rate of existing borrowers should moderate to contain the impact of borrowers’ rising leverage.
Ind-Ra believes that the continued focus of MFIs on some of the highest penetrated states such as West Bengal, Kerala, Tamil Nadu and Karnataka has increased the risk of unreported multiple borrowings in such states. Hence, the chance of a surge in delinquencies is high in these states.