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Optimum net interest margin for NBFC-MFIs should be 11-11.5%: Fusion Microfinance MD

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Optimum net interest margin for NBFC-MFIs should be 11-11.5% as the credit cost is higher now than what it was before the pandemic, Fusion Microfinance managing director Devesh Sachdev told ET in an interview.

This is 100-150 basis points higher than the 10% margin cap these lenders used to follow before deregulation of lending rates for NBFC-MFIs which came into effect from April 2022.

“The Malegam committee had prescribed the 10% margin cap on the assumption of about 0.5% credit cost. But credit cost is higher now,” said Sachdev, who is also the chairman of industry body Microfinance Institutions Network.

Fusion, which was listed on November 15 last year on the bourses, had its NIM at 10.3% for the December quarter while its credit cost was 0.65% of average on-book portfolio. The NIM was 9.9% for the nine months period ending December 2022 on credit cost of 1.85%.

The lender’s gross non-performing assets ratio was at 3.7% as compared with 5.7% at the end of March 31, 2022, helped by improved recovery and writing off of sticky loans to the tune of Rs 200 crore within this time period.

Fusion had restructured loans worth Rs 134 crore in 2021 under regulatory dispensation to help borrowers to tide over the Covid-related stress while it could recover only about 30-35% of it.

The high slippages from the restructured book was one of the reasons behind the stress for the microfinance lenders, across the spectrum.Industry leader Bandhan Bank managed to recover merely one-third of its Rs 8000 crore restructured book.

Sachdev said that his company has no immediate plan for product diversification. Instead, it is looking to focus on the MSME vertical which was set up in December 2019. MSME contributes merely 2.5% to its assets under management (AUM) of Rs 8654 crore and the rest is micro loans. “We will rather focus on MSMEs. We would like to take measured steps,” he said.

Fusion’s AUM grew 44.5% year-on-year at the end of December with 2 lakh new borrowers coming into the fold taking the total base to 34 lakh.

The lender reported a net profit of Rs 103 crore for the December quarter as compared with Rs 94 lakh in the year ago period.

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