CreditAccess Grameen To Ujjivan: Microfinance Stocks Gain On New Regulations For Lending, Interest Rates

Shares of microfinance institutions advanced in trade on Tuesday after new rules and regulations on lending, and interest rates were announced for companies that come under the ambit.

MicroFinance Industry Network said that there was "good adherence" to the guardrails issued in July, based on monitoring of credit bureau data for August and September.

"MFIN is confident that with the existing and new measures, the sector will become more resilient and continue to play its vital role in financial inclusion," said Chief Executive Officer and Director Alok Misra.

Some of the new rules include:

• Reduction of maximum lenders to a single client to three from the previous limit of four.

• Prohibition on lending to clients who have defaulted for over 60 days, with an outstanding loan of Rs 3,000 or more, with number of days being reduced by more than 30% from the previous limit of 90 days.

Shares of CreditAccess Grameen Ltd. and Ujjivan Small Finance Bank Ltd. rose the most by over 4% each during trade, while Spandana Sphoorty Financial Ltd. and Muthoot Microfinance Ltd. stock pared gains after rising in trade on Tuesday. This compares to a 0.02% advance in the benchmark NSE Nifty 50 as of 11:40 a.m.

CreditAccess Grameen and Ujjivan Small Finance Bank rose as much as 4.2% and 4.4%, respectively during the day. CreditAccess Grameen has fallen by 42% in the last 12 months, while Ujjivan Small Finance has declined by 37% during the same period.

Of the 19 analysts tracking CreditAccess Grameen, 15 have a 'buy' rating on the stock, three suggest a 'hold' and one has a 'sell', according to Bloomberg data. The average of 12-month analysts' price targets implies a potential upside of 18.3%.

Thirteen of the 16 analysts tracking Ujjivan Small Finance Bank have a 'buy' rating on the stock, two suggest a 'hold' and one has a 'sell', according to Bloomberg data. The average of 12-month analysts' price target implies a potential upside of 36%.