Microfinance in doldrums. Will this company outperform, again?

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Subscribe to enjoy similar stories. MUMBAI : The true litmus test that differentiates high-quality lenders is whether they have “best-in-class" non-performing asset (NPA) ratios during crises. This applies to all kinds of lenders in all kinds of lending segments.

The average gross GNPA in 2020-21 across more than 100 lenders in the segment was 10.85%, according to data from Sa-Dhan (a self-regulatory organization for microfinance players) quarterly reports. During 2021-22, the average GNPA across more than 225 lenders was 12.8%. During FY21 and FY22, CreditAccess Grameen reported GNPAs of 4.4% and 3.6%, respectively.

This was amongst the lowest reported GNPAs. Of course, a percentage of the portfolio was also written off, which reduced the GNPA, but the comparison with other players still holds. The other top-notch players included Equitas Small Finance Bank and Arman Financial Services.

However, Equitas has a small percentage of the total book as microfinance, and the microfinance portfolio had an NPA of 3.41% and 5.93% in FY21 and FY22, respectively. Our point is that CreditAccess is among the best of almost all lenders operating in the microfinance segment (banks, NBFC-MFIs, etc.). There are several reasons why CreditAccess could be a potential comeback player in the microfinance sector as and when it turns around.

We cannot foresee when that will happen, but if history is a reliable guide, the next four quarters should help clean the slate. Conservative provisioning: Almost every year since 2020, CreditAccess has maintained a provision coverage higher than its reported GNPA. This means it consistently holds higher provisions, which is a hallmark of a conservative lender.