ஆசிர்வாத் மைக்ரோபைனான்ஸ் லிமிடெட்          Asirvad Microfinance Limited          आशीर्वाद माइक्रोफिनॅन्स लिमिटेड         ആശിർവാദ് മൈക്രോഫിനാൻസ് ലിമിറ്റഡ്          ಅಸೀರ್ವಾಡ್ ಮಿಕ್ರೊಫಿನನ್ಸೆ ಲಿಮಿಟೆಡ್          ਅਸਿਰਵਾਦ ਮਿਕਰੋਫਈਨਂਸੇ ਲਿਮਿਟੇਡ          ଆଶୀର୍ବାଦ ମଇକ୍ରୋଫାଇନାନ୍ସ ଲିଃ          আশির্বাদ মাইক্রো ফাইনান্স লিমিটেড

Message from Chairman


I am happy that our company has performed spectacularly over the last year.Our business has soared and we have expanded too many more geographies, thereby setting up a solid base for continued growth in the future as well.

I am pleased to announce that Asirvad Microfinance has delivered phenomenal growth in AUM and profitability. In fact, over the last four years, the Company has reported AUM growth of nearly 12 times, growing from ₹3,220 million in FY14-15 to ₹38,388 million in FY18-19. India’s Microfinance sector has also done well over this period, with AUM growing four-fold from ₹400 billion in FY15 to over ₹1.5 trillion in FY19. Based on current trends and prospects, we are confident of our continuing outperformance over the industry in the foreseeable future as well.

Economic Outlook

The Indian economy has undergone significant shifts as domestic activity in 2018-19 and inflation turned unusually benign under the impact of deflationary food prices. In 2018-19, the Centre’s tax collections trailed budget estimates and contributed to fiscal deficit levels higher than the revised estimates. Continued implementation of structural and financial sector reforms to reduce public debt remains essential to secure the economy’s growth prospects. In the near term, continued fiscal consolidation is needed to bring down India’s high public debt.

GDP growth is expected to recover from a low of 6.6 per cent in Q3FY19 to 7.5 per cent in Q4FY20. The boost to private investment activity from the faster resolution of stressed assets and increased (and more broad-based) credit offtake amidst rising capacity utilisation can raise the growth prospects further. Conversely, further escalation of trade tensions and protectionist trends, increased volatility in global financial conditions over the uncertainty of the stance of monetary policy in the US and other advanced economies, uncertainty surrounding Brexit, a sharper slowdown in the Chinese economy and a shortfall in the south-west monsoon may pose downside risks to the growth path. Growth in India is expected to stabilise at just under 7¾ per cent over the medium term, based on the continued implementation of structural reforms and easing of infrastructure bottlenecks.

Outlook for Non-Banking Financial Companies (NBFCs)

The NBFC sector has been providing credit to customers in the underserved and unbanked areas. NBFCs are integral to the Indian Financial system, augmenting competition and diversification in the financial sector and complementing the banking system and channelling savings into capital formation, necessary for India’s economic growth and development. NBFCs continue to be an integral part of the country’s financial service ecosystem.

The credit growth is likely to remain moderate until 1H-FY20, with likely revival only in 2H-FY20, because of the ongoing liquidity conditions and political uncertainty. NBFC credit growth in FY20 should be about 15-17 per cent, NBFC-Retail credit is expected to cross ₹10 trillion; growth rate could be higher if the credit flow to NBFCs improves

Outlook for Microfinance Institutions (MFIs)

NBFC-MFIs increased their market share of microfinance loans from 39 per cent to 58 per cent between FY15 and FY18, following greater regulatory clarity and demand for microfinance loans from states other than Andhra Pradesh. The growth rate of MFIs is expected to remain higher, which will increase its market share further in the next few fiscals. NBFC-MFIs and non-profit MFIs are the only two player groups with loan portfolios exclusively focused on microcredit. In last fiscal, small finance banks (SFBs) with MFI lending businesses started looking at other asset classes such as affordable housing, small and medium enterprises and vehicle finance, after receiving the SFB licence.

NBFC-MFIs increased their reliance on the securitisation route on the back of a tight liquidity environment, to meet their growth targets in FY19. NBFC-MFIs raised over ₹26,000 crores via securitisation in FY19 (~170 per cent growth over last fiscal). Securitisation has always been a critical funding tool for NBFC-MFIs, but the dependence was particularly high during the second half of FY19. There was a sharp increase in the number of NBFC-MFIs is taking part in the securitisation market in FY19. Forty-three entities raised funds through the securitisation route in FY19 (compared to twenty-four in FY18). Out of this, as many as fourteen were first-time entrants in the securitisation market, which is an encouraging development. Tighter liquidity resulted in increased funding cost. Both Priority Sector Lending (PSL) and non-PSL driven transactions reported higher yields by 100-150 bps in Q3FY19 over the levels seen in FY18. Although, the yield has come off by around 25-30 bp in Q4 FY19, with some easing in systemic liquidity.

Despite the inherent nature of the asset class and having witnessed several headwinds (demonetisation, local and political issues in some areas, cyclones and floods in some parts and farm loan waivers in some states), the sector has displayed remarkable resilience. The collection efficiencies have remained high at more than 99 per cent since CY17.

Securitisation is expected to remain a vital source of funding for NBFC-MFIs. Banks and large NBFCs are looking to acquire MFIs. Banks are also increasingly looking to partner with NBFCs for originating PSL assets (either through the BC channel or through the co-origination model), and with improving liquidity conditions, the dependence on securitisation should moderate. The traction in disbursements is likely to continue, and the industry has the potential to grow at 20-22 per cent per annum over the medium term. While the segment continues to offer excellent growth potential, most of the incremental growth opportunities lie in the relatively under-developed states, which are less penetrated, or in mature regions with higher ticket size loans to borrowers. Foray into the relatively under-penetrated markets would also entail investments in terms of creating a microfinance credit culture and imparting training to potential borrowers. However, these are crucial for instilling credit discipline, which, in turn, is a critical factor for ensuring good asset quality. Further, in mature states, the credit evaluation processes will have to be upgraded as the MFIs move to higher ticket sizes.

Performance of the Company

Your company successfully built upon the consolidation exercise, undertaken last year to address issues arising out of demonetization. The company expanded to newer geographies such as Sikkim and Goa, which are fast emerging as the company’s best growth markets

Asirvad is ranked as the 5th largest NBFC MFI in India. The Company has a network of 942 branches across 22 States with presence in 290 districts and 1,75,354 centers. It pursues the policy of continuing re-assessment of concentration risk & diversification. During the year, the Company passed on the reduction in the interest rate charged by banks/Financial Institutions by reducing the interest rate charged to customers from 22.25 per cent to 21.90 per cent.

Asirvad’s AUM grew by 57.6 per cent from ₹24,372 million in FY17-18 to ₹38,408 million in FY18-19, active loan accounts increased by 20.3 per cent to 18 million from 15 million last year. Loan of ₹42,836 million was disbursed during the financial year, and these loans have a 99.7 per cent repayment rate. The Company’s operational revenue grew by 28.6 per cent to ₹4,987 million for period FY18-19 compared with ₹3,877 million for FY17-18. Provisions stood at ₹198 million including the standard provision of ₹28.5 million made for period FY-18-19 as per the company’s policy. We are now servicing over 18 million customers in 22 states.

Thank you

I am grateful to all our shareholders and other stakeholders for the support extended to the company over the years, especially in the last four years. We remain indebted to the Reserve Bank of India and NABARD for the excellent support given to the industry in the difficult days following demonetisation. I would also like to congratulate Mr Raja Vaidyanathan, Managing Director, and the management team, for having led the company exceptionally well. Now that we are firmly back on the growth path, we look forward to another stellar year of growth and profitability and thereby live up to your expectations.