I have been tracking MFIs for quite sometime. Based on this, worst seems to be behind in terms of NPL (new loans have ~100% collection for all MFIs). Due to break neck growth, there was general view that 5% borrowers are difficult ones and group liability is forcing them to repay (borrowers believed group liability to be sancrosanct). During demo, due to political interventions, this structure broke down and hence, defaults. Risks such as drought etc. will be there but will have local impact. The biggest risk is political intervention as the borrower base is strong vote bank. It will bite the sector again in future in some other form.
MFIs have already started growth though I think it will be slower going forward as Credit Bureau rejects have been increasing which shows that indebtedness has been increasing (long term impact).
Low ticket Gold Loan customers face similar problems as MFI borrowers as they below to same strata. Hence, gold loan has also slowed down after demo. Going forward it should have better growth.
Gold Loan: Mana auctioned 531 cr of gold (~5% of gold loan book). 90% of clients are existing clients (60% roll over + 30% existing i.e. who come after some gap) and 10% new. I think their short term 3 month product led to NPA (due to non payment of interest, again related to weakness in rural economy post demo) which led to higher auction. Cautious growth combined with lower growth in new customers in general led to loan book run down.
MFI: PAR>60 was 7.7% (con call) and >90 was ~7%. The borrowers less than 90 PAR would have been paying installments and will still be in PAR if they have not cleared 100% overdue (the non repayment story gained strength in Dec’16, by June it is 180 days). Hence, I do not think we should really worry about more write-offs unless there is new political turmoil during upcoming state elections.
I think Mana has good strategy of Gold Loan + MFI + Affordable Housing + Commercial Vehicles, catering to the same segment of borrowers which it can leverage in future. Also, its non gold loan book is 20%. Since target is to achieve 25% (by FY18 end ?) we can expect strong growth there.
I hope to see good results next q onwards, will be worried if it does not come.
Disclosure: Recently took small position in the stock