Profitability of these institutions is likely to improve to 2.7-3 per cent in FY24 and 3.2-3.5 per cent in FY25. This is expected on the back of an increase in margins, given the growing share of the new portfolio originated at higher rates after the implementation of the new regulations in FY23 and lower credit cost, the rating agency said.
It has estimated that a large part of the credit cost pertaining to the pandemic was absorbed by FY23.
In addition, collection efficiencies have improved to the pre-pandemic-levels. Thus , the residual credit cost, which would have to be absorbed in FY24, shall be lower, the report said.
Higher loan rates will also help in improvement in net interest margins, and thus an uptick in profitability.
MFIs saw a robust expansion of 38 per cent in assets in FY23 and the agency has projected the growth to remain healthy at 24-26 per cent in FY24 and 23-25 per cent in FY25, albeit lower than the highs seen in FY23.
Lower credit cost on the back of better collections and asset quality, as well as higher pricing of new loans will help standalone microfinance institutions this fiscal to report higher profitability, which is likely to improve to 2.7-3 per cent, says a report.
Microfinance Institutions (MFIs) have recouped from the pandemic and have clawed back market share leadership from banks. They closed FY23 with a 40 per cent market share, 600 basis points higher than the previous year while banks saw their share declining to 34 per cent from 40 per cent in FY22.
Icra Ratings, in a report on Monday, said MFIs are likely to report a growth of 24-26 per cent in loan sales this fiscal and 23-25 per cent in FY25 when they are also likely to see a further spurt in profitability to 3.2-3.5 per cent. MFIs profitability stood at 2.1 per cent in FY23.
