Benign regulatory regime, improved funding environment and geographic penetration resulted in a strong come back for NBFC-MFIs in FY13-15. Loan book grew at CAGR of 37 per cent over the period while number of clients and ticket size too grew rapidly. After witnessing such a strong growth, it is only natural to question the sustainability of growth and worry about creation of excess.
Our analysis from publicly available data, interaction with large players in the industry and the credit bureau suggest that:
- Strong growth over FY13-15 was merely “filling up the void” created by the AP crisis in 2010.
- Penetration levels have improved but continue to hover in mid-30’s, leaving enough growth opportunities in the years to come.
- Borrower leverage is still within comfort zone, adequate checks and balances are in place.
- Growth as well as asset quality outlook remains benign, especially for players that adhere to spirit of joint liquidity group (JLG) model and keep ticket sizes under check.
We would also like the highlight the key difference in operating environment prevalent during the AP crisis and today. The MFIs then were literally ‘playing blind’ due to absence of any credit related information about the borrower. Also, there was no self-regulation in place which could correct any sort of excesses in the system. Both these aspects have been addressed through establishment of credit bureau and self-regulatory body.
Thus, we continue to remain optimistic on the growth trajectory of the NBFC-MFI category.
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