It is my pleasure to present to you our 13th Annual Report for the year ended March 31, 2020. I am pleased to announce that Asirvad Micro Finance has delivered industry-leading growth in AUM and profitability. In fact, over the last five years, the Company has reported an AUM growth of nearly 17 times, increasing from ₹3,220 million in FY14-15 to ₹55,026 million in FY19-20. India’s Micro Finance sector has also done well over this period, with AUM growing from ₹400 billion in FY15 to more than ₹2 trillion in FY20. Based on current trends and prospects, we are confident of our continuing outperformance over the industry in the foreseeable future as well.
The Indian economy has been undergoing a protracted slowdown in growth, even before the outbreak of Covid-19, as stress in the financial and real sector fed into each other. India recorded its slowest growth performance in 11 years at 4.2 percent GDP growth in FY20. Fitch expects economic activity to contract by 5 percent in the fiscal year ending March 2021 (FY21) due to the strict lockdown measures imposed in the last week of March 2020, before rebounding to 9.5 percent in FY22.
GDP growth outlook may be negatively affected by renewed asset-quality
challenges in banks and liquidity issues in NBFCs. The financial sector was
already facing weak business and consumer confidence for some years before the
crisis and this was aggravated by certain high-profile defaults in the NBFC
sector arising from lapses in governance. The year 2021 could potentially be a watershed
moment, with the Government taking a series of fiscal measures to generate
demand and ease the liquidity pressure, which gives rise to hopes of green
shoots appearing sometime in Q3 at least. These measures include directing
public sector banks to lend more to NBFCs, introducing credit guarantee scheme,
relaxation in norms on external commercial borrowings, loan co-origination with
banks, among others.
Outlook for Non-Banking Financial Companies (NBFCs)
A renewed rise in NPLs
and the need for further financial government support now appears likely despite
regulatory measures announced by the RBI. These measures include an extension
of the 90-day moratorium on recognition of impaired loans to 180 days and
several relaxations in bank lending limits such as allowing banks to fund
interest on working-capital loans. These moves will impose a heavy burden particularly
on public-sector banks to bail out the affected sectors and extend
impaired-loan recognition, which can heighten solvency risks if not met by
adequate and timely capital support.
India Ratings and Research (Ind-Ra) has maintained a Negative Outlook
for NBFCs for FY21. It sees multiple headwinds in terms of slower balance sheet
growth and elevated slippages, leading to weaker profitability for the sector. It
expects NBFCs to grow their portfolio at 8 to 10 percent in FY21, driven by
retail focused NBFCs with good track record and an established franchise. The
slowdown in auto sales, cash flow challenges for small businesses, and
sluggishness in real estate sector is likely to pose challenges to the
collection and recovery teams.
Outlook for Micro Finance Institutions (MFIs)
Rating agency ICRA expects the securitisation volumes for NBFC-MFIs to
be impacted significantly in 2020-21 due to the Covid-19 pandemic negatively
affecting the operational activities during the first quarter and the availability
of securitisable loans in originators’ books (due to substantially lower
incremental disbursements in the first quarter of FY21). Profitably is likely
to remain subdued on account of compression in margins arising from higher
on-balance sheet liquidity, a higher proportion of long-term borrowings, and
hardening of funding cost for a few select players. Due to the asset quality
pressures, a rise in credit cost could affect profitability, with NBFCs turning
conservative and making higher provisions on stressed asset classes. Also, the
benefit of operating leverage may not accrue to NBFCs due to slower growth in
A steadily declining investment rate in the economy has been a major factor causing deceleration in growth prior to the Coronavirus crisis. The balance sheets of the corporate sector, banks, as well as the government, have been under severe stress, and the policy focus on reducing policy rates has not been enough to lift sentiments. Despite a lower cost of borrowing, banks continued to be risk-averse and unwilling to lend, while borrowers were hesitant to borrow due to the uncertainty of a slowing economy.
ICRA expects MFI credit costs to double from the
present levels of 1-1.5 percent to 2.5-3 percent for most players, which is
likely to impact their profitability (RoEs) by 3-5 percent in FY2021. The impact on
credit costs could be higher if the pandemic leads to a permanent loss of
livelihood or significant decline in income for a section of the borrowers which
would impact their repayment capacity.
Performance of the Company
Your company was able to maintain the momentum in growth of recent years, following the sharp slowdown immediately after Demonetisation in November, 2016. The company expanded to newer geographies such as Sikkim and Goa, which are also emerging as growth markets.
Asirvad is ranked as the 4th largest
NBFC MFI in India (source: MFIN Micrometer). The Company has a network of 1,030
branches across 22 States with presence in 316 districts and 2,09,956 centers.
It follows a policy of continuus re-assessment of concentration risk and diversiﬁcation. During the year,
the Company passed on the benefit of lower interest rate charged by its lending
banks and Financial Institutions by reducing the rate of interest charged to its
customers from 21.70 percent to 21.30 percent per annum.
Asirvad’s AUM grew by 43.27 percent from ₹38,408 million in FY18-19 to ₹55,026 million in FY19-20, active loan accounts increased
by 31.1 percent to 2.36 million from 1.8 million last year. A total of 1.19
million loan accounts were disbursed during the ﬁnancial year, and these
loans have a 97.92 percent repayment rate. The Company’s operational revenue
grew by 53.6 per cent to ₹10,551 million for FY19-20
compared with ₹6,869 million for FY18-19.
Provisions stood at ₹1,474 million including the
standard provision of ₹636 million made for FY-19-20
as per the company’s policy. We are now servicing over 2.36 million customers
in 22 states. Your
has forayed into lending for MSME enterprises against the security of property having
started operations in 15 branches across Andhra Pradesh, Karnataka and Tamil
Nadu. The Company’s MSME loan book at the end of the year stood at Rs.136 million.
I am grateful to all our shareholders and other stakeholders for the support extended to the company over the years. We remain indebted to the Reserve Bank of India and NABARD for the support given to the industry over the years. I would also like to take this opportunity to commend Mr Raja Vaidyanathan, Managing Director, and his management team, for having led the company from strength to strength. Notwithstanding the current phase of stress, we look forward to a year of growth and profitability as to set the benchmark for the industry.