NBFC-MFIs Face Stricter Lending Norms: Asset Growth to Stall

A recent Icra report indicates that stricter lending norms will limit asset growth for NBFC-MFIs to 5% in FY25. With a negative sector outlook, challenges like borrower over-leveraging, socio-political disruptions, and employee attrition are leading to higher overdue risks and credit costs, impacting profitability.

The non-banking finance companies-microfinance institutions (NBFC-MFIs) are bracing for a significant slow down in asset growth, projected at just 5% for FY25, as highlighted by a recent Icra report. This contraction is attributed to new, stricter lending norms implemented in response to burgeoning concerns within the sector.

Over the past two years, NBFC-MFIs enjoyed a robust expansion in assets under management. However, the growth trajectory is now set to falter, with a slew of challenges including borrower over-leveraging, socio-political disruptions, and operational setbacks due to employee attrition. The report reveals an upsurge in overall overdue books for the first half of FY2025, posing a threat to loan quality.

The financial outlook for these entities is grim, as credit costs are poised to rise dramatically to between 5.4% and 5.6%, coupled with tighter net interest margins. The profitability hit is further aggravated by the recent adoption of prudent lending measures, capping borrower indebtedness and lender count, leading to projected higher borrower rejection rates.

(With inputs from agencies.)