The collection efficiency of micro-finance institutions (MFIs) have witnessed an improvement in June following the easing of lockdown restrictions, says an Icra report.
It said relaxation in lockdown restriction has enabled domestic MFIs to re-establish their connect and convince a large number of borrowers to start paying their instalments as it will be cost-effective for them.
This resulted in better than expected collection efficiency in June 2020 for the rating agency's sample of 21 MFIs, constituting around 70 per cent of the industry (except small finance banks).
"For most MFIs, especially those with a sizable presence in rural regions, the collection efficiency has improved to 40-70 per cent in June 2020 compared to a cumulative collection efficiency of less than 10 per cent in April-May 2020, the rating agency said in the report.
Icra further said that based on discussions with industry players, borrowers in the rural areas who are engaged in agricultural, dairy, and allied services have performed better than borrowers from other industries.
Analysis of 21 MFIs showed that the liquidity on the balance sheet of most of the MFIs is not sufficient to meet their debt-servicing obligations and operating expenditure during June-September 2020 period, the report stated.
"Out of the ICRA sample of 21 entities, 16 have a balance sheet liquidity cover of less than one time for the June-September 2020 period, with the majority (11 entities) being in the 'BBB' and below rating category," the agency's vice president (financial sector ratings) Sachin Sachdeva said.
However, the presence of undrawn sanctioned lines, ramp-up in collections and expectations of a partial moratorium on borrowings result in improvement in the liquidity cover (adjusted) and turns the shortfall into a surplus, except for a few entities, he said.
Sachdeva added that the flow of liquidity to MFIs is expected to improve further as the remaining targeted long-term repo operation (TLTRO) funds are to be invested by the end of July 2020.
Apart from boosting liquidity, the MFIs are taking steps to improve their operating profits, the report said.
MFIs are focusing on rationalising their cost structures by way of rent renegotiation/branch consolidation, salary cuts, incentive reduction and/or retrenchments, it added.