NBFC-MFIs Asset Growth to Moderate in FY25: Icra

Mumbai, Dec 5 (PTI) Stricter lending norms adopted in face of slew of concerns will restrict asset growth OF NBFC-MFIs to 5 per cent in FY25, a report by Icra said on Thursday.

Icra has assigned a negative outlook on the sector, given the significant near-term headwinds on growth, asset quality and profitability.

The last two years had seen a robust expansion in assets under management for non-banking finance companies-microfinance institutions (NBFC-MFIs) but the same is set to moderate to 0-5 per cent in FY25, the report said.

The agency attributed the fall in growth to challenges stemming from borrower over-leveraging, socio-political disruptions, and employee attrition-led operational challenges.

The sharp increase in the overall overdue book in H1 FY2025 also poses a significant downside risks to the near-term loan quality of the sector, it said.

The credit costs will increase to 5.4-5.6 per cent from 2.2 per cent in FY24 for NBFC-MFI entities, the agency said, adding that this, along with a compression in net interest margins, is set to impact profitability in FY25.

It can be noted that an industry self regulatory body adopted prudent steps in July this year for responsible lending and tightened it further in November under which a borrower's indebtedness is capped at Rs 2 lakh and number of entities lending to a borrower is capped at three.

"Borrower rejection rates are projected to increase significantly as over 20 per cent of the borrowers are expected to be impacted by the new guardrails," the agency's co-group head for financial sector ratings A M Karthik said.

Declining lending rates and higher funding costs are projected to moderate the return on managed assets (RoMA) to 0.4-0.8 per cent in FY25, down from a record 3.6 per cent in FY24, it said.