Assam approves a relief package for MFI borrowers in the Budget
Package offers significant relief to lenders; implementation key
* The Assam government in its Budget session has approved an INR75b relief package for MFI borrowers, or ~60% of total state MFI loans. This provides a significant relief to MFI lenders, particularly Bandhan, as it has the highest market share (55-60%) in the state.
* Bandhan’s total exposure to Assam is INR74.3b (3QFY21), or ~14% of total AUM. Around 18%/14% of its Assam portfolio has been in the SMA/NPA category, and hence the relief package brings significant relief to the lender.
* Lenders such as RBL Bank/Satin Creditcare Network/Ujjivan Financial Services/Arohan Financial Services have ~2%/4%/3%/~20% exposure to Assam.
* During its 1QFY22 business update, Bandhan had reported a sharp decline in collection efficiency to ~72% (including NPAs), and thus near-term asset quality would remain under pressure. We maintain our Neutral rating with a TP of INR375 per share (2.5x FY23E ABV).
Assam government approves relief package for MFI borrowers in the Budget
* The Assam government in its Budget session approved a relief package for MFI borrowers. Titled, ‘Assam Microfinance Incentive and Relief Scheme (AMFIRS), 2021,’ the total relief provided by the Assam government to MFI borrowers under this package is INR75b (~60% of total state MFI loans). The package involves three main features:
* For zero dpd borrowers, the state will provide an incentive of INR25k for maintaining a good credit discipline.
* For borrowers overdue by 1-89 days, the state will regularize by paying their overdue. Once these borrowers start servicing their dues, they will be entitled to an incentive of INR25k.
* NPA borrowers can receive a full waiver by applying through a prescribed format for consideration under this scheme. Further clarity is required on whether there is any LGD to be passed on to the lender or if the same will be entirely borne by the government
Assam package brings significant relief to Bandhan; other MFI lenders to also benefit
* The Assam package is fairly large (~60% of state MFI loans) and provides a significant relief to Bandhan as it has the highest market share (55-60%) in the state. Its total exposure to Assam is INR74.3b (3QFY21), or ~14% of total AUM.
* Around 18% of Bandhan’s Assam portfolio has been in the SMA category (~7%/6%/5% in 8-30/31-60/61-90 day overdue), or 2.3% of its total MFI portfolio. Around 14% of its Assam portfolio is in the NPA category, or 1.8% of the total MFI book. The Assam stressed book formed 4.1% of Bandhan’s MFI portfolio in FY21. Thus, this package brings major relief to Bandhan.
* Lenders such as RBL Bank/Satin Creditcare Network/Ujjivan Financial Services/Arohan Financial Services have ~2%/4%/3%/20% exposure to Assam. Thus, all these lenders will also benefit from this relief package.
Higher overdue accounts in West Bengal and a sharp drop in CE remains a key concern
Bandhan had higher overdue position, with ~10% of its West Bengal portfolio in the SMA category. The state was facing collection headwinds even before the second COVID wave due to election disturbances and hopes of a loan waiver. The impact of the second COVID wave was higher in rural India, and this adversely affected overall CE for the bank. The same declined sharply in the MFI portfolio (~72% v/s 95% in Mar’21), including NPAs. Excluding NPAs, CE would have been closer to ~80%.
Valuation and view
While its performance in 1QFY22 is going to be highly volatile, the risks to MFI lenders are receding at the margin. Near term earnings/asset quality pressure may continue as the recovery in CE and implementation of the Assam package will take some time. Bandhan has already reported a sharp decline in CE to ~72% (including NPAs) in its recent business update. Progress in CE in the coming months remains a key monitorable. We continue to maintain our Neutral rating with a TP of INR375 per share (2.5x FY23E ABV).
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