Arohan Financial Services Limited | Annual Report 2022-23

Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022”, applicable to all lending entities involved in microfinance activities including Banks, SFBs and all NBFCs. A paradigm shift from the earlier microfinance guidelines, the new Master Direction revised the pricing guidelines, indebtedness, and income limits for microfinance loans. The new guidelines, which were to be implemented by lending institutions earliest on best effort basis, but no later than October 1, 2022, over a period of time, will help reduce the probability of over-indebtedness of microfinance borrowers with a mandate to derive the household income (capped at INR 3 lakhs per annum) and ensure that the total EMI burden across all loans (no restriction on loan usage) for the household is under 50% of income assessed. 2) Recognition of Non-Performing Assets (NPAs): With reference to the Master Circular on Prudential norms on Income Recognition, Asset Classification, and Provisioning pertaining to Advances (IRACP norms) dated October 1, 2021, and the subsequent communication issued by the Reserve Bank of India ‘Prudential norms on Income Recognition, Asset Classification, and Provisioning vide circular DOR. STR.REC.68/21.04.048/2021-22’ dated November 12, 2021, it was clarified that loan accounts classified as NPAs may be upgraded as ‘standard’ assets only if entire arrears of interest and principal are paid by the borrower. With regard to this, the RBI in its circular DOR.STR.REC.85/21.04.048/2021- 22 dated February 15, 2022, clarified that “NBFCs shall have time till September 30, 2022, to put in place the necessary systems to implement this provision. All other instructions of the Circular shall continue to be applicable as per the timelines specified therein.” This further emphasizes the importance of credit repayment discipline for all the borrowers of the financial inclusion landscape. 3) Data Submission to Credit Information Companies (CICs): According to the letter DOR.SIG. FIN.No./20.16.042/2022-23 dated June 7, 2022, the Reserve Bank of India had notified themodifications in the data format for furnishing of customer information to Credit Information Companies. The necessary changes in the UCRF (Uniform Credit Reporting Format) for the MFI segment were incorporated by the CICs and communicated to the CIs. Further, an additional notification with effect from October 1, 2022, specified that erroneous or non-submission of data in the modified fields will lead to the rejection of the records by the CICs. Industry Overview: The FY 2023 was the first normal year, since the pandemic in FY 2020 which opened up a domino effect of events starting with the lockdown, six months of the moratorium, various natural calamities in operationally active geographies for the microfinance industry followed by wave 2 and 3 of COVID-19. The microfinance industry gradually restored normalcy and scaled growth to record, as on March 31, 2023, a total loan portfolio (MFI universe) of INR 3,48,339 Cr, a total number of active loan accounts of 13.0 Cr with 6.6 Cr unique borrowers. A total of 82 NBFC-MFIs have emerged as the largest provider of micro-credit with a total loan amount outstanding of INR 1,38,310 Cr, accounting for 40%of the total industry portfolio. 13 Banks hold the second largest share of the portfolio in micro-credit with a total loan outstanding of INR 1,19,133 Cr, which is 34% of the total micro- credit universe. While SFBs have a total loan amount outstanding of INR 57,828 Cr with a total share of 17%, NBFCs account for another 8 % and other MFIs account for 1.0% of the microcredit universe. MFI Universe 3.01 2.93 3.21 3.48 8.7% 6.5% 2.7% 2.7% Jun’22 Sep’22 Dec’22 Mar’23 POS ( INR Lakh Cr) Growth % (QoQ) Growth Pattern NBFC-MFIs Banks SFBs NBFCs Others POS (INR Lakh Cr) Growth % (YoY) 38% 138.31 119.13 57.83 29.44 3.63 20% 49% 4% 22% Key industry highlights of FY 2023 1) Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022: Effective April 1, 2022, the Reserve Bank of India released a set of new guidelines for microfinance lending, called “Master Direction - 31 | Annual Report 2022-23