Higher rates, increasing credit costs to temper profits for micro finance cos says S&P
delinquences in India's micro finance sector is expected to increase credit costs to more than 5% in the current fiscal as risks that borrowers will default has increased, analysts at Standard & Poors (S&P) said.
Credit costs will ease but will still stay high at more than 3% next fiscal, impacting profitability for micro finance companies as return on average assets (ROAA) will fall by 60 to 65 basis points to 3.85%, the analysts said in a call. One basis point is 0.01 percentage point.
Shinoy Varghese, associate director, financial institutions ratings at S&P said delinquences are expected to rise especially in the micro finance industry as lenders tighten their belts after recent regulatory actions.
«We have seen upto 12 lenders to one borrower and that number will come down as many lenders will not roll over their loans. The risk that borrowers will default willfully has also increased,» he said.
Higher cost of borrowings for non banking finance companies (NBFCs) due to increase in interest rates and higher risk weightage by banks is likely to impact their profitability.
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