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

Message from Chairman

It is my pleasure to present to you, our 14th Annual Report for the year ended March 31, 2021. I am pleased to announce that Asirvad Micro Finance Ltd has delivered an industry- leading performance even in such adverse conditions to end the year with profitable growth. In the past six years, your Company has reported an AUM growth of 18.6 times, from 3,220 million in FY14-15 to 59,846 million in FY20-21. India’s Microfinance sector too has done well during this period, with AUM growing from 400 billion in FY15 to almost2.59 trillion in FY21. Based on current trends and prospects, we are confident of continuing our industry outperformance in the foreseeable future as well.

Economic Outlook

The rise in daily new cases since mid of February 2021 marked the onset of the second wave of COVID infection in India. Despite the surge in cases, the recovery in the economy is resilient with sustained improvement in a majority of high-frequency indicators. The agricultural sector remains the bright spot of the economy with food grains production touching 303.3 million tonnes in 2020-21 beating record production levels for the fifth consecutive year in a row. MGNREGS has acted as a cushion for the rural economy by generating all-time high employment of 383.8 crore person days during 2020-21, 44.7% higher compared to the previous year.

On the positive side, strengthening demand conditions can be seen in automobile, telecom and power consumptions. Monthly GST collections reached record high in recent months. The growth momentum in rail freight traffic remains high, port cargo traffic and domestic transport picked up further. The digital payment upsurge continues, powered by the resumption of economic activity, financial inclusion and behavioural shift towards digital payments.

Domestic equity markets recovered in FY21 to register a jump of 71% and 68% in Nifty-50 and Sensex respectively. The recovery was supported by stimulus measures announced by the Government, RBI’s liquidity measures and record investments by FPIs. FY 2020-21 witnessed a record FPI inflow of US$ 36.2 billion, the highest in a decade after 2014-15. India’s foreign exchange reserves reached US$ 582.27 billion– an increase of US$ 142.6 billion over FY20. The Central Government raised `13.7 lakh crore as gross market borrowings during FY21 at a weighted average borrowing cost of 5.79%, the lowest in 17 years.

India’s GDP is estimated to contract by about 7.7% in FY21, compared to 4.2% growth in FY20, on account of the impact of the COVID-19 pandemic. S&P Global Ratings cut India’s growth forecast for FY22 to 9.5% from 11% earlier. The severe second wave that led to local lockdowns in April and May reduced economic activity sharply. S&P expects that damage to private and public sector balance sheets will constrain growth over the next couple of years. For the next fiscal ending March 31, 2023, S&P projects India’s growth at 7.8%.

Outlook for Non-Banking Financial Companies (NBFCs)

Fitch Ratings expects India’s NBFC would face renewed asset quality and liquidity risks as the second wave of coronavirus infections could delay recovery. A hit to the collection efficiency of NBFC-MFIs owing to protracted Covid-19 curbs will increase asset-quality pressures in the sector, with loans in arrears for over 30 days likely to cross the surge in the aftermath of demonetisation.

With loans in arrears for over 30 days – or the 30+ portfolio at risk (PAR) mounting, the MFI sector is expected to resort to restructuring of loans to a larger extent than last fiscal as this is perhaps the only practical option to support borrowers and not let accounts slip into the non-performing bucket, the credit rating agency said in a note. Challenges are likely to increase if recent restrictions to contain the pandemic are expanded or prolonged, leading to greater economic and operational disruption. SMEs, commercial vehicle operators, microfinance customers and other wholesale borrowers remain at greater risk of stress in this environment, particularly as financial buffers would have narrowed after the severe economic shock over the past year. The production and supply chains remain susceptible to labour shortages if the large-scale urban-to-rural labour migration of 2020 recurs.

Outlook for Micro Finance Institutions (MFIs)

The microfinance industry’s gross loan portfolio (GLP) grew 10.1% to `2.32 trillion as of December 31, 2020, according to Microfinance Institutions Network (MFIN). During the December quarter, the disbursement de-grew 3.86% YoY, and a growth of 90.4% QoQ. Five top states in terms of loan amount outstanding for MFIN members are Tamil Nadu, Karnataka, Bihar, Maharashtra and Odisha. They account for 51% of GLP and the top 10 states account for 82% of total outstanding.

It is heartening to see that the green shoots seen at the end of Q2 have proved to be real and sector disbursements are reaching almost at pre-COVID-19 levels backed by increased demand for loans to restart livelihoods. The disbursements during Q3FY21 was 96% of Q3 FY20, set to reach normal levels by end of fiscal 2021. India Ratings and Research maintained a “stable” outlook on large non-bank microfinance institutions/MFIs (with AUM of more than `500 billion) for FY22.

The Reserve Bank of India aims to bring regulatory parity among all microlending institutions and has floated a discussion paper. Currently only the registered NBFC-MFIs are following sector specific rules, RBI aims to curtail regulatory arbitrage enjoyed by other micro lenders. Overall, the proposals are beneficial for the development of the microfinance sector. Removal of pricing cap would allow low-cost lenders, like Asirvad to gain larger market share, while maintaining its profitability.

Performance of the Company

Your company was able to maintain its profitability despite the sharp slowdown after the national wide lockdown at the start of the fiscal. Asirvad is ranked as the 4th largest NBFC MFI in India (source: MFIN Micrometer). The Company has a network of 1,062 branches across 24 States with a presence in 326 districts and 2,25,494 centres. Its policy of continuous re-assessment of concentration risk and diversification helped in controlling the credit costs during the pandemic and hence maintain its profitability. During the year, the Company passed on the benefit of the lower interest rate charged by its lending banks and Financial Institutions by reducing the rate of interest charged to its customers from 21.30% to 20.67 % per annum.

Asirvad’s AUM grew by 8.76% from 55,026 million in FY20 to 59,846 million in FY21, active loan accounts increased by 2.12% to 2.41 million from 2.36 million last year. A total of 3.77 million loan accounts were disbursed during the financial year, and these loans have a repayment rate of 94.05% after the moratorium. The Company’s operational revenue declined by 0.20% to 10,530 million for FY21 compared with10,551 million for FY20.

Provisions stood at 3,414 million including the standard provision of1,662 million made for FY21 as per the company’s policy. We are now servicing over 2.41 million customers in 24 states. Your Company has forayed into lending for MSME enterprises against the security of property having started operations in 15 branches across Andhra Pradesh, Karnataka, Telangana and Tamil Nadu. The Company’s MSME loan book at the end of the year stood at 403 million. The company also started gold loan services on a moderate scale in 23 branches and the loan book at the end of the year stood at 25 million.

Thank you

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.  

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, Mr B N Raveendra Babu, Joint Managing Director and other management teams 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 to set the benchmark for the industry.