In a note released on Friday, November 29, UBS said that the Micro Finance overdues continued to rise at an accelerated pace in the month of October.
The brokerage said that PAR 0+ or Portfolio at Risk for zero days has gone up by 130 basis points on a month-on-month basis in October to 17.5%, after having witnessed a jump of 380 basis points between March and September 2024.
Portfolio At Risk for 90+ days also increased by 60 basis points from September to 12.2% in October.
“While floods might have affected collection efficiency levels in a few districts and partially explain the steep rise in the 1-90 DPD (Days Past Due), in our view, the pace of rise in delinquency suggests that over leverage has not yet resolved itself and commentary by some managements around stress peaking out in the third quarter might prove to be too optimistic,” UBS wrote in its note.
The Micro Finance Industry has also seen tightening of norms around disbursements and while UBS calls it a net positive for the medium term, it expects reduced liquidity for weaker borrowers and a faster rise in delinquencies in the second half of the year.
“In subsequent months, we will watch out for indications of Portfolio At Risk of 1-90 days stabilising,” UBS said.
The brokerage has a “neutral” rating on Bandhan Bank, where 46% of the book is MFI, IndusInd Bank, where 9% of the book is MFI and AU Small Finance Bank, where 7% of the book is MFI.
MFI stocks have been in focus on Friday, particularly those of CreditAccess Grameen, after Goldman Sachs downgraded the stock to “sell” from its earlier rating of “buy” but cut its price target by 60% to ₹564, citing rising asset quality stress.
