Return on Equity for Indian Microfinance Companies to Turn Negative in FY 2018, says Rating Agency
Rating agency ICRA expects the return on equity for micro finance companies to turn negative in the current fiscal due to a drop in net interest margins and as credit costs rise along with operating expenses.
The rating agency expects net interest margins for micro finance companies to decline to 80 to 100 basis points. Operating expenses are also likely to increase due to investments to be made on information technology and collections infrastructure by most players.
“Given our estimates of credit costs of 5.5-8%, and interest reversals on delinquent portfolio, overall net interest margins are likely to decline by 0.8-1% leading to negative return on equity for the sector for FY2018,” ICRA said.
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