The results only confirm what many have been suspecting that there is a stress in the system, especially in microfinance (SME and retail) segments where default rates may have started picking up. We have seen that with Indusin, Poona and now IDFC first bank, all taking heavy provisioning as a risk management measure. This was the segment that was being chased by most of NBFCs seeking to grow their loan book forgetting that this is also the riskiest segment especially during high interest rates.
Not sure what’s going to happen to other NBFCs who have got heavy exposure to microfinance and I trust as part of good corporate governance and risk management practice they will also take similar steps.
Thanks to RBI’s proactive action of tightening liquidity taking steps to control credit bubble in the system otherwise we could be witnessing something worse.
The challenge with Poona is their smaller balance sheet as opposed to the bigger players, so 600 crores worth of provisioning will have a bigger hit for them.
I only hope that this is the end of provisioning and management doesn’t come up with additional one. Best case scenario, they don’t have to use this provisioning.
But in general I can’t find anything else wrong with Poona. They have got strong management, a committed promoter and deep pockets. With interest rates expected to be cut they will eventually come out of this rut sooner than later.
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