“While all weekly centre meetings, disbursements, and collections are temporarily on halt due to lockdown, employees are maintaining regular connection with customers via phone calls,” analysts at ICICI Securities note after a call with CreditAccess Grameen’s management.
Despite an assuring outlook, large brokerages — whether Kotak Institutional Equities, Axis Capital, Ambit Capital or Credit Suisse — say the MFI sector may be in for a rough ride.
“MFIs are mostly daily-wage earners involved in small-scale business activities and are relatively vulnerable to external shocks, as witnessed during demonetisation. A prolonged period of lockdown
or drop in overall business volumes can impact credit offtake,” analysts at Kotak Institutional Equities note.
Among noted entities with MFI exposure, Bandhan Bank thus far has seen the harshest downgrade, with Ambit Capital reducing its target price by 84 per cent to Rs 65 apiece (from Rs 395 earlier), though maintaining its ‘sell’ rating.
“The change in target price has been driven by our expectation of losses in 2020-21 and single-digit return on equity over the next four-five years,” the brokerage adds. That said, analysts at Bernstein feel Bandhan Bank is the most resilient franchise within the microfinance space, as its lending isn’t consumption-based and it doesn’t lend to migrant workers.
Apart from business disruption, the MFIs operating as non-banking financial companies — CreditAccess Grameen and Spandana Sphoorty — within the listed space may have more worries. It is gathered that MFIs have represented to the regulator that their banks aren’t extending the benefit of a moratorium on loans due, while they have passed on the gains of the moratorium to their customers. In such a situation, with cash flows not accruing, the sector faces risks of a liquidity squeeze.