Usually what has been seen is that floods have had limited impact on both the livelihoods of borrowers and the lenders. Unless there is complete devastation business is impacted for a week or two and they move on.
Assam was a unique case where many problems converged to break the repayment discipline.
What we as investors can do is only go for lenders which are geographically diversified. So that it would take state-level, and country-level floods, and natural disasters to affect the lending portfolio in a big way. We can track weather forecasts of upcoming cyclones, but they are highly unreliable and estimating damage is very difficult.
CAGL has really good disclosures on district-level concentration but they are also concentrated in few states. Arman is too concentrated, same for Bandhan. Haven’t checked latest diversification of Spandana, Suryoday, Satin etc.
Risks have a way of hiding in valuations until they materialize. Both COVID, and DEMON showed that. An isolated natural disaster will show the benefits of geographical diversification to the market. As it ignores geographic concentration for now in the high valuations of Arman and CAGL. Hope such a disaster never happens though.
| Subscribe To Our Free Newsletter |
