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Rating Agency ICRA Puts MFI Cashpor in Negative Watch List

The credit rating agency ICRA has placed the ICRA-BBB-Minus rating of Rs.25 crore NCD Programme of Cashpor Micro Credit (CASHPOR) on watch with negative implications, following the demonetisation impact.

The rating agency said the decline follows the likely adverse impact of recent demonetization on Cashpor’s liquidity and asset quality indicators. "The risk of Cashpor’s credit quality deteriorating in the near to medium term is relatively high owing to its high leverage (total debt, including off balance sheet book, to net-worth of 12 times as on September 30, 2016). Further, Cashpor’s limitations being a Section 8 Company, on increasing core capital could impact its solvency indicators, it said.

CASHPOR Micro Credit (CASHPOR) is a not-for-profit Company that provides microfinance exclusively to Below Poverty Line (BPL) women in the states of Uttar Pradesh, Bihar, Chhattisgarh, Jharkhand and Madhya Pradesh. CASHPOR started its operations in eastern parts of UP in 1997 and expanded in 2002 in other states.

Cashpor’s repayments collection had been badly impacted after demonetisation compared to 30 days past due overdues of 0.25% as on September 30, 2016 owing to limited currency supply and disruption in borrowers’ cash flows. The agency also said the uncertainty is likely to continue owing to a possible worsening of credit culture, following rumours on loan waivers in Uttar Pradesh, Madhya Pradesh and Maharashtra where Cashpor has a significant 61% of its portfolio.

While Cashpor could raise funds from other lines, ICRA believes that some of the lenders have adopted wait-and-watch policy on further disbursements, as of now. However, it said, "In this regard, the fact that Cashpor has been able to receive Rs 60 crore of funding post demonetization provides some comfort. In ICRA’s opinion, Cashpor’s ability garner fresh funding, if required, would be critical for its operations over the short-term."

ICRA said it would continue to closely monitor the developments on these parameters, more specifically the portfolio collection efficiency and access to funding lines and accordingly would take suitable rating action once more clarity emerges on these issues.

Cashpor’s portfolio of Rs.1,186 crore as on September 30, 2016, presence of institutional nominees on its Board of Directors (BoD), experienced management team, established & good processes for loan origination, collection and monitoring supported by strong systems and processes which have helped it report good asset quality indicators (0+ delinquency of 0.33% as on September 30, 2016) — all have come to null and void due to non-recovery of micro loans it provided due to demonetisation.

In a cautious note pertaining to microfinance sector in particular, ICRA said, "Given the marginal borrower profile and the risk of overleveraging relative to the borrower’s debt repayment capacity, the credit quality of micro loan portfolios fundamentally carries much higher level of volatility."

The potential impact of politically motivated actions / events (for instance, debt waivers announced by government, competing programmes at subsidised rates, or other regulatory actions), natural calamities, epidemics, etc. is difficult to quantify with high amount of certainty, it added in its statement.

Prior to demonetisation, Cashpor’s portfolio was in Uttar Pradesh (UP), ~34% in Bihar, ~3% in Chhattisgarh, ~2% in Jharkhand and 1% in Madhya Pradesh, with an ambitious expansion program in the pipeline. As of September 30, 2016, CASHPOR had a network of 508 branches spread over five states (UP, Bihar, Chhattisgarh, Jharkhand & Madhya Pradesh) serving about 8.8 lakh active clients and has total managed portfolio of Rs.1,186 crore. CASHPOR reported a profit after tax (PAT) of Rs 13.5 crore in FY16 on an managed asset base of Rs.1,241 crore and PAT of Rs 12.3 crore in FY15 on managed asset base of Rs.1,100 crore. As per provisional results of H1 FY2017, Cashpor reported PAT of Rs. 12.6 crore.

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