Experienced management and established track record in micro-finance lending.

VFSCL, a Kolkata based NBFC-MFI, commenced microfinance lending to woman borrowers organized in Joint Liability Groups since 2006. The company is also engaged in extending SME loans to entrepreneurs in rural and semi-urban areas for income-generating activities. VFSCL has its operations spread across 13 states, mainly West Bengal, Bihar, Tripura, Odisha and Jharkhand among others. The company operates through a network of 246 branches as on June 30, 2022. VFSCL is promoted by Mr. Ajit Kumar Maity (Chairman) and Mr. Kuldip Maity (Managing Director and CEO). Mr. Ajit Kumar Maity has over three decades of experience in microfinance and social development. He has obtained training in Microfinance- Legal & Regulatory Frameworks in September, 2006 from International Development Law Organization which was held in Sydney. Mr. Kuldip Maity has experience of around two decades in microfinance space. VFSCL’s board comprises of 6 members led by Mr. Ajit Kumar Maity (Chairman). The board comprises Mr. Ajit Kumar Maity, Mr. Kuldip Maity and four independent directors. The day to day operations of VFSCL is managed by Mr. Kuldip Maity (MD & CEO) of VFSCL. The established track record of promoters in microfinance lending has supported VFSCL’s growth strategy. The company’s Asset under Management (AUM) stood at Rs 804.27 Cr. as on June 30, 2022. As on June 30, 2022 West Bengal and Bihar contributed 70.59 percent and 10.44 percent respectively to VFSCL’s assets under management (AUM). The balance AUM was distributed across the states of Assam, Odisha, Tripura, Chhattisgarh, Madhya Pradesh and Uttarakhand, among others.

Acuité believes that presence of the experienced promoters in the microfinance segment will be central to support the business risk profile of the company.

 Adequate capitalization levels & resources raising ability

VFSCL has established relationship with ~36 lenders, public and private sector bank and financial institutions. The company has availed Term loans from the Banks (58.29 percent) and NBFCs/FIs (41.71 percent of the outstanding borrowings as on March 31, 2022). VSFCL has been able to raise funds of ~Rs 460 Cr during FY2022. Additionally, the company maintains healthy liquidity in the form of sufficient cash and bank balance of Rs 47.25 Cr as on March 31, 2022.  Despite healthy resource raising ability the company’s disbursements continued to remain subdued in FY2022 when compared to the precovid disbursement levels. As a result, the company’s AUM grew marginally to Rs 803.57 Cr as on March 31, 2022 from Rs 785.47 Cr as on March 31, 2022. The company’s disbursals rebounded during FY2022; the company disbursed Rs 537.92 crore during FY22 vis a vis Rs 236.12 crores in FY21. Although the disbursements continue to remain on the lower side when compared to Rs 1325.29 Cr during FY2020.

Acuite takes cognizance of the company’s resources raising ability, however VFSCL needs to raise equity so as to bolster its capitalization levels in the near term.
 

Geographically concentrated portfolio and risk inherent to microfinance segment

The activities of microfinance companies, like VFSCL are exposed to geographical concentration risks. VFSCL has presence in 13 states with concentration in West Bengal (70.59 percent of the overall portfolio) and balance in 12 states as on June 30, 2022. It has 246 branches located over 78 districts. This exposes the company to high geographical concentration risk and could not diversify to other states due to pandemic. The company's performance is expected to remain exposed to competitive or political landscape in these regions and occurrence of events such as natural calamities, which may adversely impact the credit profile of the borrowers. Besides geography, the company will be exposed to competition and any changes in the regulatory framework thereby impacting credit profile of VFSCL.

Acuité believes that geographic concentration in its portfolio coupled with the inherent risk in microfinance segment will continue to weigh on the company’s credit profile over the near to medium term.

 
Asset quality challenges and profitability impact

The company is also engaged in extending SME loans to entrepreneurs in rural and semi-urban areas for income-generating activities.  Given the credit profile of microfinance borrowers, any impact on the income flow of these households as a result of economic shocks could impair their repayment ability.  Given the challenges, the delinquencies have remained on the higher side and the company reported a 90+DPD at 4.58 percent as on March 31, 2022 as against 5.31 percent as on March 31, 2021. The company also reported higher delinquencies in the softer buckets; delinquencies in 30- 90dpd stood at 10.75 percent as on March 2022 as against 0.33 percent as on March 31, 2020. Although the delinquencies have now improved as the company reported a 90+ DPD at 3.83 percent as on June 30, 2022. Significant decline in disbursements, asset quality stress and the resultant credit provisioning have altogether impacted the profitability. During FY2022, VFSCL’s PAT declined to Rs 1.12 Cr as against Rs 6.02 Cr during FY2021(Rs 35.06 Cr in FY2020). While the company’s current collection efficiency has been improving since FY2022, profitability is expected to improve in the near term subject to improvement in the eco-system of the micro finance sector.

Acuité believes, given the challenges, the company’s ability to manage the additional slippages while maintaining the portfolio collections will be crucial.