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MOSL: FINANCIALS – MFI- Getting back on track-Collection efficiency improving in most states

​Financials – MFI: Getting back on track; Collection efficiency improving in most states

• We interacted with several MFIs, both private and public, to get an update of the situation on the ground. There is a visible improvement in most stressed states, barring Maharashtra.
  
• Our interactions with managements suggests that collection efficiency in UP has largely returned to 98%+ levels from the 30-40% levels a few months ago. 90dpd overdues, too, have reduced to sub-15% levels. The situation in Maharashtra still remains grim with 90dpd overdues at 17-20%.
  
• The pace of disbursements has picked up in most geographies and is expected to reach pre-demonetization levels in 3-6 months on improving collection efficiency.
  

Collections stabilizing in key states; situation in Maharashtra remains grim

Collection efficiency in Uttar Pradesh (UP) is back to 98-99% levels, up from less than 50% post demonetization. Other major states like Karnataka and MP are also displaying much improved collection trends. PAR >90dpd in most troubled states, including UP, has dropped below 15%. However, Maharashtra continues to witness significant delinquency pressures, with PAR >90dpd at 17-20%. Several companies confirmed that the next six months could remain a difficult period, particularly in Maharashtra. While our interactions with the companies suggest minimal/zero impact of the recently announced farm loan waivers, we would like to observe the delinquency trends for a few more quarters.

Disbursements improving on the back of client intent and repayments

Pace of disbursements could be back to pre-demonetization levels in the next 3-6 months. We believe repayments and improved collection trends have increased the confidence of companies to start disbursing loans at a healthy pace again. While group discipline is still considered low, some companies mentioned that attendance in center meetings is improving, which is a positive sign. While several emphasized that all customers had started paying again in these group meetings, we take this with a pinch of salt, considering that our ground reality channel checks suggested that collection officers had to visit clients individually to recoup money.