Most non-bank finance companies have been forced to stop door-to-door collections after several payment pick-up agents succumbed to the virus in the past six weeks or so. Despite the Reserve Bank of India allowing the recast of small loans, non-banks say they won’t be able to do much as such proposals require customer consent, involving doorstep visits.
Ravaged by the second wave of the pandemic, non-bank lenders have seen a 50% rise in customers missing payments in the first fortnight of May, threatening to push up overall defaults to perilous levels.
Most non-bank finance companies (NBFCs) have been forced to stop door-to-door collections after several payment pick-up agents succumbed to the virus in the past six weeks or so.
“The situation is far worse than what it was last year — nearly a dozen of our collection agents died between April and May. This number was zero last year because of the asset classification standstill,” said the chief executive of a non-bank lender. “In one month alone, we have seen NPAs (non-performing assets) more than double. In one month, we are adding 25% of the total NPAs. We fear that in June, bad loans could rise by as much as 50%.” Most non-bank lenders have seen collection efficiency dip by 5-10% between April and May.
‘No Risking Lives of Employees’
At Cholamandalam Finance, it dropped to 93% in the vehicle finance portfolio for April, from 116% in March. Roll-forwards for loan payments increased to 4.57% from 1.42% in March.
Equitas SFB saw collection efficiency dip to 88% in April from 94% in March. Cheque bounce rates have also jumped.
“I have the option to restructure loans, but I can’t risk my staff and tell them to do recast-related documentation,” said Kailash Baheti, chief financial officer, Magma Fincorp. “We are not allowing our collection officers to step out — it’s only tele-calling. We can’t afford to risk their lives.”
Veteran banker Uday Kotak is among those who have called for valuing lives over livelihoods amid the second wave. Kotak said his company lost 17 employees in April, equal to the fatalities in all of FY21.
“People balance sheets should matter more than financial balance sheets,” Kotak said. “We have to do whatever it takes to save lives first, even as we battle for livelihoods. And if our healthcare capacity is currently going through its challenges, we must be ready to curtail non-essential economic activities.”
Ease Recast Rules: FIDC
The Finance Industry Development Council (FIDC), which represents NBFCs, has appealed to RBI to ease recast rules and allow digital delivery of documentation. It asked that customers be allowed to request and invoke restructuring by video, email, SMS or WhatsApp.
“The middle ground could be regulatory relaxation on documentation, so restructuring can be implemented without any physical contact with borrowers,” said Baheti of Magma. “Unless this happens, restructuring may be non-starter.”
In its latest monetary policy announcement, RBI announced version 2.0 of the resolution framework for borrowers with exposure of less than Rs 25 crore that haven’t availed of restructuring under the earlier framework (March-August 2020) and were classified as standard loans at the end of March 31. This restructuring window will be open until September 2020. FIDC has also called on RBI to consider an additional three-year moratorium for long-tenure loans, over and above the two-year period applicable under the present scheme.