Rising economic activity to boost NBFC-MFIs’ AUM in FY2023

Healthy demand along with increasing level of economic activity and rising vaccinations across the country is expected to boost non-banking financial companies-microfinance institutions’ (NBFC-MFIs) portfolio growth as well as profitability in FY2023.

According to ICRA Ratings, the long-term outlook for NBFC-MFIs remains robust, driven by the fact that the growth in disbursements is expected to have continued in Q3FY22, post revival in Q2FY22.

“Disbursements picked up again in Q2 FY2022, pushing up the growth in the assets under management (AUM) of NBFC-MFIs to around 5 per cent (annualised) in H1 FY2022,” ICRA said.

“Similar situation was also faced by microfinance-focused small finance banks (SFBs) in FY2021 and H1 FY2022, though the growth rates observed by them in the on-book portfolio was slightly higher than that observed by NBFC-MFIs.”

Besides, in view of the muted performance in H1FY22, ICRA has revised the FY22 growth outlook for the AUM of NBFC-MFIs to 12-14 per cent. On the other hand, the growth rate in the AUM of NBFC-MFIs is estimated to improve to 18-22 per cent in FY2023.

However, downside risk to growth estimates in case of significant disruptions caused by the new wave of infections in Q4FY22 or future waves remains.

“Though the industry is expected to witness an improvement in the AUM growth in FY2022 compared to growth in FY2021, the operating profitability is expected to remain moderate. Further, the credit costs are expected to remain elevated because of persisting uncertainty and expected slippages from the restructured book,” said Sachin Sachdeva, Vice President and Sector Head, Financial Sector Ratings, ICRA.

“This would keep the profitability subdued for NBFC-MFIs and SFBs in FY2022, though the same is likely to witness a significant improvement from FY2023.”

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