A financial year that tested endurance at various levels

Economy & Policy | 08 April 2021

A financial year that tested endurance at various levels


Although FY2020-21 started on a disastrous note, with uncertainty regarding the spread of the virus and severe economic lockdowns, it appears to have closed in a far better place. This is reflected not just by hard core numbers but by business sentiments as well.


Firms engaged in manufacturing, services and infrastructure polled by the Reserve Bank in March 2021 were optimistic about a pick-up in demand and expansion in business activity into 2021-22. Consumer confidence, which was gradually increasing, has dipped once again, however, with the recent surge in COVID infections in some states and the measures announced to contain it.


Nevertheless, in his 7th April, 2021, MPC speech, the RBI Governor observed that urban demand has been gaining strength on the back of normalisation of economic activity and should get a fillip with the ongoing vaccination drive. He also pointed out that the fiscal stimulus from increased allocation in the Union Budget 2021-22, expanded production-linked incentives (PLI) scheme and rising capacity utilisation should provide strong support to investment demand and exports.

Steady recovery

During FY2020-21, growth data from Q1 and Q2 was disheartening; the economy shrunk by 24.4% and 7.3%, respectively, in the first and second quarter. However, in the third quarter of FY2020-21, the light at the end of the economic tunnel shone through as growth came in at 0.4%, officially signaling that India is out of a recession after two consecutive quarters of degrowth.  


India Quarterly GDP Growth

The growth in Q3 was led by Agriculture, Forestry & Fishing, which expanded by 3.9%. Results from a survey by the World Bank affirmed the importance of the agricultural sector in keeping India’s rural economy afloat in the year of the pandemic. In addition, Manufacturing, Electricity, Gas, Water Supply & Other Utility Services, Construction and Financial, Real Estate & Professional Services also demonstrated growth in various magnitudes between September and December 2020.


Gauging the current situation, the RBI has projected that real GDP is expected to growth at 10.5% in 2021-22, posting an increase of 26.2% in Q1, 8.3% in Q2, 5.4% in Q3 and 6.2% in Q4.


A time to remember

All in all, 2020-21 has been a difficult financial year, especially for the most vulnerable segments of society. But it has presented numerous learnings as well and tested the endurance of individuals, enterprises and governments. Technology came to the forefront as not just a ‘good-to-have’ but a core component of business strategy for most businesses. Side by side, the importance of inter-personal skills and emotional equanimity were underlined as remote work formats became the norm. Most importantly, it highlighted the need for crafting and constantly upgrading a Business Continuity Plan, which protects both human resources as well as business growth, from exogeneous disasters. There’s a sentiment within thought-leading circles that the trends which emerged in FY 2020-21 will only gain significance in future as the world stays alert and ready for other unexpected exigencies.


Microfinance Sector



India’s microfinance sector ended the previous financial year - FY2019-20 - on a high note, registered a 31% jump in its loan portfolio to Rs 2.36 lakh crore, demonstrating that it was completely over the liquidity crisis. However, its performance was severely impacted during the last week of FY2019-20 and the first two months of FY 2020-21, when the nationwide lockdown was most stringent. Both collections and disbursements came to a standstill, and by May 2020, nearly 98% of accounts were under moratorium.


Response and Recovery

Policy makers and regulators responded rapidly with supportive measures. At one level, MFI borrowers were facilitated through government transfers of cash, food essentials and relief from debt repayments through moratorium, interest subvention, restructuring, and ex-gratia schemes (waiver of compound interest component). At the same time, there were efforts to buoy NBFC-MFIs through moratorium on borrowing and financing support via SIDBI, NABARD, and TLTRO, so that they could tide over liquidity issues. NBFC-MFIs were also included in the list of essential services, to enable them to resume essential operations.


On their part, NBFC-MFIs, also responded to the crisis with agility and empathy to customers, using a blend of human relationships and technology to safe-guard their customers’ financial and broader well-being. Many NBFC-MFIs accelerated their digital transformations to reach out to customers virtually and facilitate their recovery.


Time to heal

According to credit bureau CRIF High Mark, after witnessing a shrinkage in the two quarters of FY2020-21, the Gross Loan Portfolio of MFIs rose sequentially by 1.18 per cent to Rs 2,26,660 crore in December 2020. During the third quarter (Sept 2020 to Dec 2020), disbursements approached pre-pandemic levels.


According to Microfinance Institutions Network’s Micrometer (36th issue released in March 2021), the microfinance industry was slowly inching towards pre-Covid levels, both in terms of disbursements as well as the quality of portfolio, by the third quarter of FY2020-21. Disbursements in Q3 FY21 were around 96% of the same period in the previous year. MFIN also suggested that disbursements were expected to reach normal levels by the end of Q4 FY2020-21 on the back of increased demand for loans.


However, the credit bureau CRIF High Mark pointed out, “While sequentially, things on the disbursement front showed a better picture, the dues on older loans continue to be a challenge. The loan with dues between 30-180 days shot up to 12.7% in December 2020 from 2.6% in September 2020 and 1.4% in June 2020.” The pandemic is perhaps the biggest test of the MFI sector as it involved both health and economic threats.  Micro-enterprises were one of the worst hit sectors of the economy and accordingly, the MFI sector will require time to demonstrate a deep and sustained recovery as it handholds micro-entrepreneurs through their darkest days.



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