NBFC-MFIs post 80% growth in net profit at Rs 1,105 cr for Q3 FY24

The listed microfinance institutions (MFIs) and MFI subsidiaries of the listed finance companies posted 80 per cent year on year (Y-o-Y) growth in net profit at Rs 1,105 crore in the December quarter of the current financial year (FY24). The buoyant interest income of 51.88 per cent Y-o-Y and credit offtake helped non-banking finance companies (NBFCs)-MFIs report a healthy bottom line. Sequentially, profit was up by just 4.14 per cent from Rs 1,061 crore in the September quarter (Q2FY24).

The interest income rose to Rs 4,508 crore in the third quarter ended December (Q3FY24) from Rs 2,968 crore a year ago. Sequentially, the growth showed a sharp moderation from Rs 4,224 crore in the second quarter ended September 2023, according to analysis of seven NBFC-MFIs by Business Standard. Some of the listed MFIs include CreditAccess Grameen, Fusion Microfinance and Satin Creditcare.

Sachin Sachdeva, Vice President and Sector Head - Financial Sector Ratings, ICRA said after removing the cap on lending rate/margins under revised regulations in 2022, MFIs hiked their lending rates and the majority of their current book comprises portfolio lent at higher interest rates. In addition, increasing borrowing rates, given the rise in systemic interest rates, also led to an increase in lending rates. The combined effect is a substantial increase in interest income.

The interest expenses of seven NBFC-MFIs grew 50.7 per cent Y-o-Y to Rs 1,814 crore and sequentially, they were up by 6.8 per cent Q-o-Q.

Sachdeva said on the interest expenses side, many of the MFIs have seen rating upgrades, which helped them witness relatively less increase in costs of funds.
In addition, MFIs reduced the excess liquidity on books after the pandemic, helping to reduce negative carry. These aspects have helped ensure a controlled increase in interest costs, thereby, leading to improvement in margins. This along with reduced credit costs, helped them report improvement in profitability.

The Reserve Bank of India has raised concern about the disproportionately high margins of some NBFC-MFIs. Last week M Rajeshwar Rao, Deputy Governor, RBI at an NBFC summit said it has been observed that while the lenders were quick to pass on the increased costs to borrowers, they have been reluctant to pass on the benefits envisaged under the new framework.

Some of the MFIs have increased their margins disproportionately in the new regime. RBI was not oblivious to the misuse of the freedom provided to the microfinance sector and irresponsible practices would compel us to act, Rao added.

As for the credit costs, the indicator of asset quality and obligation to set aside money provision, rose 46.9 per cent Y-o-Y to Rs 595 crore in Q3FY24.
However, they rose sequentially by 13.5 per cent from Rs 524 crore in Q2FY24. Their assets under management (AUM) grew by 38.17 per cent Y-o-Y to Rs 88,217 crore at the end of December 2023.