Informist, Monday, Nov 15, 2021

--CreditAccess Grameen MD: See return on assets at 1.8-2.0% in FY22

--Provided significantly for likely write-offs

--Expect write-offs to be higher in Oct-Mar

--See improved profitability in Oct-Mar

--Aim to retain 75% provision coverage ratio

--Will open 30-40 new branches by Dec-end

By T. Bijoy Idicheriah and Alekh Archana

MUMBAI - CreditAccess Grameen aims to achieve 17-19% growth in its loan portfolio in the current financial year ending March, with the second half expected to drive growth, helping the microfinance institution achieve a 1.8-2.0% return on assets.

CreditAccess Grameen's collections and disbursements, which were hit by the second wave of the COVID-19 pandemic, came back on track in the September quarter, Managing Director and Chief Executive Officer Udaya Kumar Hebbar told Informist in an interview.

"I think profitability will be back by the next two quarters and we are estimating a 1.8-2.0% return on assets, which means we will have a good profitability for the second half," Hebbar said, adding that the lender has made significant provisions for potential write-offs.

The pre-provisioning operating profit was quite strong, but elevated provisions for potential losses weighed on profits in the quarter ended September. 

In Jul-Sep, CreditAccess Grameen reported a 20% year-on-year fall in consolidated net profit to 636 mln rupees, although it rose nearly threefold sequentially. The consolidated return on assets in Apr-Sep was at 1.0%.

On a consolidated basis, the loan book rose 19.2% on year to 133 bln rupees as on Sep 30, with Madura Microfinance accounting for a little over 16%.

CreditAccess announced the acquisition of Madura Microfinance in November 2019, although the approval from National Company Law Tribunal is still awaited.

The microfinance institution treats loans as non-performing when they turn overdue for over 60 days as against the 90-day regulatory requirement. This is why despite making adequate provisions on the book as on Sep 30, Hebbar expects loan write-offs to be higher. 

Going by the regulatory requirement, the provisions on book are already adequate to cover the write-offs, he said, adding that any increase in provisions will be on account of CreditAccess Grameen's conservative provision strategy of 75% provision coverage ratio. 

The lender's collection efficiency was 98% in October, while that of Madura Microfinance was 90%, with Maharashtra reporting the lowest ratios among states, he said. 

Since CreditAccess Grameen has sizeable operations in Maharashtra, a higher number of COVID-19 cases impacted collections in the state. About 10% of such customers from the state are currently delinquent and struggling to return to normal repayments, the remaining 90% are back on track on payments, he said.

"From Maharashtra, we would take a little more write-offs compared to other states. Once the journey of NPA (non-[erforming assets), provisioning and write-offs is completed, Maharashtra will be normal," Hebbar said.

Asked if this pointed to a concentration risk for CreditAccess Grameen, Hebbar said the institution was using the strategy of expanding to bordering states and districts for growth and risk mitigation.

From Karnataka, it added more operations in neighbouring states like Maharashtra, and using this approach it has moved into states such as Uttar Pradesh, Bihar, Jharkhand and Gujarat. 

"That is why new branch expansion by default is in newer geographies. We don't see need to open any branches in Maharashtra, Karnataka, Tamil Nadu, Madhya Pradesh because we have covered almost all districts."

Credit Access Grameen, which has so far opened 140 branches this fiscal year, aims to add another 30-40 branches by the end of December, he said. 

Today, shares of CreditAccess Grameen ended 0.1% higher at 605.50 rupees on the National Stock Exchange.

GROWTH MODEL
The microfinance institution aims to use its capital base to grow organically, which enables it to replicate its strong operating capability and asset quality in newer geographies, Hebbar said. 

He said, although the acquisition of Madura Microfinance was a deviation from this model, it was a strategic call to acquire presence in the Tamil Nadu market.

Hebbar said they were not considering any opportunities at present, however, any acquisition going forward would be a strategic bet.

He said that 10% of the loans of Madura Microfinance had already moved to CreditAccess Grameen's system, and with newer loans being booked on the common platform, 90% of Madura Microfinance loans will be on the same platform in 8-10 months.

Since the final approval for the acquisition of Madura Microfinance is yet to come, the two entities will have to function separately. 

"While we applied almost five-six months ago, because of COVID, there is a queueing effect. We are expecting at least two quarters of requirement for the final legal completion of the process so that we can have a common branch. Today, we run two branches of two companies."

Hebbar said the 2025 vision for the institution was to offer products aimed at the entire household, which was in sync with the Reserve Bank of India's proposed guidelines for microfinance sector. 

"We are thinking of becoming financial partner to a household, which lacks credit. It could be income generating loans or even higher education loans for the kids, two-wheeler loans, and insurance for two-wheeler, family or a house. It could also be saving and banking transaction products. We are particularly targeting low-income households."

CreditAccess Grameen is currently running pilots on loans for two-wheelers, three-wheelers, home improvement and affordable housing loans.

Hebbar was critical of some banks and small finance banks, which have access to lower-cost funds through public deposits, that provide loans to microfinance customers at rates higher than what standalone microfinance institutions offer.

Hebbar said that more governance was needed across the microfinance lending community, including banks and small finance banks, to ensure that the poor customer was not burdened or exploited. 

Even as there has been talk of financial technology being leveraged to serve microfinance customers, Hebbar said physical touch point approach was very much needed when serving low-income households.

"This is a collection business and not a disbursement business. And you need to be creating high level of relationship with the customer. Trust is the security to grow in this business. Lesser the trust, lesser the connectivity and lesser is your ability to collect the money."

Asked if Credit Access Grameen was considering applying for a small finance bank licence, Hebbar said that while banking was a good business model, the opportunity to grow as a microfinance institution was still there. 

"At least at this point, still many families in rural areas don't have access to formal finance. Our ability is high to work in deep rural pockets. We need to encash this opportunity for some more years in the NBFC-MFI model."  End

Edited by Mainak Moitra

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