NBFC collection efficiencies at their highest this fiscal says Crisil – The Economic Times

Clipped from: https://economictimes.indiatimes.com/industry/banking/finance/nbfc-collection-efficiencies-at-their-highest-this-fiscal-says-crisil/articleshow/79925957.cmsSynopsis

The recovery in collection efficiencies is good news for the beleaguered NBFCs which were hit hard due to the stringent lockdown announced in late March 2020, and subsequently, extension of moratorium on loan repayment to borrowers (under the Covid-19 regulatory package announced by the Reserve Bank of India).

MUMBAI: Collection efficiencies of securitised loans of non banking finance companies (NBFCs) have improved to their highest this fiscal year helped by the uptick in economic activity and recovery efforts by lenders. Average collection efficiencies for vehicle loans, home loans and even micro finance are near pre Covid levels though loans to small and medium enterprises (SMEs) are still showing some signs of stress, rating agency Crisil said.

Average collection ratios for November 2020 payouts for commercial vehicle loan pools jumped up to 93% from a paltry 24% in May 2020 and close to the 98-99% rate seen pre Covid in January-March 2020. Collection efficiency for mortgage-backed loans, comprising largely home loans and loans against property, were around 96% in October-November 2020 up from 71% reported in June and close to the 99% efficiency reported in March 2020.
However, pools backed by loans to SMEs saw a slight drop in collection efficiency in November, as underlying businesses and borrower cash flows are yet to achieve stability, Crisil said. The rating agency did not give the exact number for collections from SME loans.

“Economic activity has been gathering steam in recent months, and agricultural activity, which was less impacted, has steadily picked up, too. As cash flows improved, borrowers have started repaying their loan instalments,” said Krishnan Sitaraman, senior director at Crisil Ratings.
Collection efficiency of pools backed by microfinance loans, which saw a sharp decline in April and May 2020, had recovered sharply to above 70% for September payouts. But since then, the number has only crawled up slowly as cash flows of vulnerable borrowers in the segment are yet to reach pre-pandemic levels due to localised factors. Median collection ratios were at 82% for November 2020 payouts, still below business-as-usual levels of 98-99%.

“Microfinance borrowers are considered most susceptible to economic vagaries and their progression towards prepandemic business levels was expected to be gradual and incremental. However, as NBFCs in general, including microfinance institutions, further intensify collection efforts, underlying pool collections should continue to improve,” Crisil said.

The recovery in collection efficiencies is good news for the beleaguered NBFCs which were hit hard due to the stringent lockdown announced in late March 2020, and subsequently, extension of moratorium on loan repayment to borrowers (under the Covid-19 regulatory package announced by the Reserve Bank of India).

Later, as the unlocking process gathered pace, lenders mobilised their on-ground recovery staff to ramp up collections. NBFCs also improved their collection processes increasing using digital modes for recoveries at the expenses of the traditional, physical cash collection process.

After the November 2020 payout, there is adequate credit cover at outstanding rating levels for most Crisil-rated transactions, the rating agency said.

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