After recovering from the aftershocks of demonetisation, cash-intensive microfinance institutions (MFIs) and small finance banks (SFB) are bracing up to face the dual challenges of credit slippage and revival of operations in flood-ravaged Kerala.

Kerala witnessed one of the worst floods in 100 years after south-west monsoon rains lashed the State for more than two weeks, claiming more than 400 lives and displacing over eight lakh people across 3,314 relief camps in the State.

MFIs and SFBs, which operate at the grassroot-level and focus on lending to small and marginal borrowers in rural areas, have been the worst hit by the recent floods. “The real challenge for MFIs will begin only this month since last month’s floods came only after the repayment cycle date (20th of every month),” said the top official of a leading microfinance company on condition of anonymity.

According to Micrometer, a monthly report from Microfinance Institutions Network (MFIN), a self-regulatory organisation (SRO) governing the industry, Kerala has nine NBFC-MFIs spread across 303 branches, with a gross loan portfolio of ₹2,237 crore as on June 30, 2018.

Besides, Kerala has two SFBs — ESAF and Ujjivan. Together, MFIs and SFBs have a combined exposure of about ₹5,100 crore in the State.

According to the MFIN report, Kerala’s portfolio at risk (PAR-30) for Q1 FY2018-19 was 2.62 per cent, which will be adversaly affected in the subsequent quarters.

PAR-30 refers to the total principal value outstanding of loans that have at least one payment overdue for more than 30 days. “It (floods) will have short-term effect on the PAR; however, the resilience exhibited by the affected people and collective solidarity shown by the public and with government support we expect normalcy earlier than expected,” said Paul Thomas, Founder, ESAF Group of Social Enterprises.

“Our total exposure in the flood-hit area is around ₹550 crore, which is less than 15 per cent of our total loan portfolio,” said Thomas.

Besides financial uncertainties, MFIs are also facing operational challenges in the form of slowdown in recovery since many of the MFI employees themselves have been affected by the floods and are in the process of rebuilding their properties.

“We have already designed a quick emergency advance for the affected,” Thomas said, adding that customer-wise requirements for extending the relief measures suggested by the State-Level Banking Committee (SLBC) are being assessed.

“With the level of resilience shown by people of Kerala, we believe things will soon improve,” said Udaya Kumar, President, MFIN.

In accordance with the RBI guidelines on natural calamity, the SLBC had earlier directed MFIs in the State to provide repayment holiday to borrowers till August 31.

“We have also requested our members to extend more time for customers to repay their dues and our members (MFIs) are very sensitive to the situation,” Kumar added.

Credit demand

According to a report from India Ratings, credit demand in Kerala is estimated to increase to ₹11,300 crore in FY19, with over 45 per cent of the Kerala population affected. “Definitely there will be a surge in demand for credit, especially in the areas of house construction, repairs and renovation and consumption,” said Thomas.

Manappuram Finance, a leading gold loan NBFC based in Kerala, said its assets under management (AUM) in Kerala is over ₹1,100 crore, of which ₹650 crore is derived from flood-hit districts, 70 per cent from gold loans, and the rest from microfinance, home loans, vehicle loans and SME lending.

“As gold loans are a popular way to raise money for emergencies and unforeseen events, we expect an initial uptick in demand for gold loans,” said VP Nandakumar, MD & CEO, Manappuram Finance.

However, when funds for rehabilitation and reconstruction start flowing in, the demand will likely get back to normal, added Nandakumar.

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