Moves in poll-bound Assam may spike asset-quality pain for sector: Crisil

A Bill passed by the Assamassembly to control the microfinance industry in the state hasthe potential to increase asset-quality challenges for thesector, rating agency Crisil said on Friday.

On top of that, if any loan waiver scheme wasannounced, it would make matters worse due to the potentialimpact of the moves on repayment discipline, Crisil said.

In the poll-bound Northeastern state, the assembly hasset aside RBI observations and passed a Bill last month to putmore controls on the microfinance industry, while the Congressparty has promised loan waivers if voted to power.

Assam's microfinance portfolio, including banks andnon-banks, was estimated at Rs 12,400 crore as of September2020.

''Certain provisions in the bill that pose operationalhurdles could trigger collection challenges and end updissuading lenders from seeking incremental business in thestate,'' Crisil said in a credit alert note.

''The legislation is the latest in a string of eventsaffecting microfinance lenders in Assam: economic stress inthe tea plantation industry in October 2019, agitation overCitizenship Amendment Bill, and the Covid-19 pandemic that hitthe entire nation,'' the agency said.

''In the case of NBFC-MFIs, the 30 plus portfolio atrisk for Assam was already high at around 20 per cent as ofMarch 2020. In this milieu, the Bill, along with statements onthe loan waiver, can create significant moral hazard,'' CrisilRating senior director Krishnan Sitaraman said.

There was a similar case in December 2019 in a fewdistricts of coastal Karnataka, which ended with MFIs taking ahit in terms of high provisioning/write-offs on loans in thosedistricts, he said.