In another report, Icra noted that microfinance institutions (MFIs) have observed a considerable decline in collections with the rates dropping to 30-60 per cent for most entities and a virtual standstill on incremental disbursements following government banning Rs 500 and Rs 1,000 notes.
It may take time for MFI collections to get back to normal as income levels of most borrowers have been affected, it said. Owing to the shortage of currency supply, borrowers may tend to prioritise cash for their daily needs over repaying MFIs.
Another visible impact of demonetisation is yields on government securities have declined significantly following the note ban on November 8.
Yields declined 53 basis points during the third quarter of the current fiscal year as against 49 basis points in the second quarter, it said.
On a cumulative basis, yields during the current fiscal year declined 104 basis points, mostly in the second and third quarters, it added.
With falling yields, PSU banks and private banks have posted healthy gains on their debt investment portfolios during first half of the current fiscal year.
Based on aggregates of 26 PSU banks and 14 private banks, Icra estimates show that PSU banks have already reported profit of Rs 18,000 crore and private ones Rs 6,400 crore from sale of investments during first half of 2016-17.
The reported treasury gains for PSBs during first half have already surpassed the gains during the full year 2015-16.
The realisation of profit from such gains will, however, be subject to sale of investments and hence can be different for banks depending on the actual sale of investments, it said.
"The incremental gains from the decline in yields during the third quarter for the PSBs (public sector banks) to be upwards of Rs 100 billion. If these gains are booked during the third quarter, the cumulative treasury profits during nine months of 2016-17 for PSBs will surpass the budgeted capital infusion of Rs 250 billion announced by the Government of India for 2016-17," it said.
The treasury gains are likely to provide some relief against the elevated credit cost, which stood at 1.64 per cent of average total assets during the first half of FY2017 for PSU banks and is estimated to provide coverage against 25 per cent of the total credit provisioning requirements of public sector banks, it said.
Given the short tenures of their loans, the drop in collections is likely to impact the near-term liquidity of MFIs, it said.
Icra's analysis indicates that most MFIs will be able to service their debt for the next two to three months, assuming dip in the underlying portfolio collection efficiency.
Entities with significant proportion of debt linked to financial covenants may face more stress if the situation continues.
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