NBFCs with exposure to microfinance, rural and semi urban borrowers with small-ticket SME, vehicle loans and unsecured loans generally are likely to be more affected as they have a relatively higher share of field collections
The stringent lockdowns implemented by various states have “adversely" impacted collections of non-banking finance companies, resulting in an increase in non-performing assets by 50-100 basis points, according to rating agency ICRA.
NBFCs with exposure to microfinance, rural and semi urban borrowers with small-ticket SME, vehicle loans and unsecured loans generally are likely to be more affected as they have a relatively higher share of field collections. Gold loan business, which has been largely branch-centric, is also expected to be impacted. However, initiatives to offer online gold loans, and the liquid nature of security provides comfort on collection and ultimate loan recovery, it said.
The share of field collections are higher for NBFCs at about 35-40%, while the same for housing finance companies is about 5-10%. ICRA estimates that HFCs are likely to be less affected because of the secured nature of their loans under the housing and non-housing segments.
With the likelihood of lockdowns extending into large part of June 2021 for most states and some normalization expected from July 2021, non-banks are set to witness roll-forwards into harder overdue buckets and delay in recoveries, which could push-up the overdues in the near-term.
“Write-offs like the last fiscal is also expected to remain elevated vis a vis the prior year trends. ICRA expects the Non-bank reported NPAs to increase to about 4.5-5.0% by March 2022 vis a vis about 4% in December 2020. This in-turn would keep the earnings subdued in the current fiscal; about 30% lower than the pre-covid levels," said Manushree Saggar, sector head financial sector ratings at ICRA.
With most states implementing stricter lockdowns in the month of May 2021, collections efforts witnessed a major set-back compounding the 5-10% dip in collections seen in April 2021
ICRA estimates that about 50% of the non-bank asset under management is in the Top-5 states with high number of Covid-19 cases, namely Maharashtra, Karnataka, Kerala, Tamil Nadu and Uttar Pradesh.