NBFC-MFIs Industry Set For Profitability Boost In FY2024 As Growth Remains Robust

The rating agency Icra expects the non-banking financial company- microfinance institutions (NBFC-MFIs) sector to report a return on managed assets (RoMA) of 1.9 to 2.1 per cent in FY2023.

The rating agency in its monthly research compendium projected the RoMA to increase further to 2.6 to 2.8 per cent in FY2024. 

The improvement in the profitability would be an interplay of the growth in the assets under management (AUM), increase in net interest margins (NIMs) and reduction in credit costs, though the operating costs are expected to remain range-bound, it added.

Icra said, "The impact of rising interest rates on funding costs is likely to be visible in H2 FY2023 and FY2024. However, the NIMs are expected to rise in FY2023 and FY2024 as the entities have increased their lending rates under the new regulatory regime."

With the expectation of buoyant demand and an increase in the average ticket size, as seen from Q2 FY2023 onwards, the industry’s AUM is projected to grow at a healthy rate. Icra estimates AUM growth of 30 to 35 per cent for FY2023 and 20 to 25 per cent for FY2024.

While demand remains firm at present, uncertain global macroeconomic conditions, the high-interest rate scenario and the increasing base of the industry would lead to a moderation in the growth rate in FY2024.  

The credit cost is expected to decline in FY2024 with continued improvement in the asset quality indicators, driven by recoveries and write-offs. Icra expects the 90-plus days past due of NBFCMFIs to improve to 2.0 to 2.2 per cent by March 2024 from 3.7 per cent as on 31 December 2022.