NBFC-MFIs may see profitability surge to 2.7-3% in FY24, ICRA estimates

ICRA added that it estimates that a large part of the credit cost pertaining to the Covid-19 pandemic was absorbed till FY2023.

The profitability of non-banking financial companies-microfinance institutions (NBFCs-MFIs) is expected to jump to 2.7-3 percent in 2023-24 and further to 3.2 to 3.5 percent in FY2025, said ICRA.

The rating agency, in a press release on August 28, also said that the AUM growth of NBFC-MFIs estimated at 24-26 percent and 23-25 percent in FY24 and FY25.

“Industry needs to remain cautious on borrowers’ indebtedness level. The improvement in profitability is seen on the back of an increase in margins, given the growing share of the new portfolio originated at higher rates, post the implementation of the new MFI regulations in FY2023 and the lower credit costs,” the agency said.

ICRA added that it estimates that a large part of the credit cost pertaining to the Covid-19 pandemic was absorbed till FY2023.

“In addition, the collection efficiencies have improved to the pre-Covid levels. Thus, the residual credit cost shall be lower. This, coupled with improvement in net interest margins (NIMs), would help NBFC-MFIs report an uptick in their profitability in the current and the next fiscal,” the agency said in the release.

In FY23, the NBFC-MFIs witnessed a robust growth of 38 percent and ICRA expects the growth to remain healthy in FY24 and FY25 albeit lower than the highs seen in FY23.