Microfinance institutions (MFIs) along with small finance banks (SFBs) will need around Rs.11,000 crore equity funding in financial year 2017-2018 in order to mitigate the impact of demonetization on their asset quality and capital adequacy, according to a report released by credit ratings agency ICRA Ltd. Even as MFIs are recovering from the after effects of demonetization, their rate of loan recovery is unlikely to come up to the pre-demonetization levels in the medium term. A total of Rs.40,000 cr. debt funding will also be needed in order to write off bad loans, that rose sharply due to demonetization and to maintain capital adequacy. As per the agency’s estimate, MFIs will have to write off loans worth Rs.3,500 cr. approximately during the year. ICRA surveyed over 600 MFI centres, covering 19 MFIs and 6,000 borrowers for the study. The report also indicated some amount of ever-greening of loans in the microfinance space.

(Live Mint)