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Collection efficiency drops in non-bank securitized pools in May: Icra

Most of the NBFCs have slowed down their disbursements and are focused entirely on collection efforts mirroring the trend seen last year during the first wavePremium
Most of the NBFCs have slowed down their disbursements and are focused entirely on collection efforts mirroring the trend seen last year during the first wave

  • The decline has been sharpest for microfinance pools where monthly collection efficiency was lower by 35% in May, compared to March. The collections for small and medium enterprise (SME) loan pools and commercial vehicle loan pools also fell significantly by around 20%

MUMBAI: Post rebounding to the pre-pandemic level in Q4 of FY21, the monthly collection efficiency of Icra-rated retail loan pools originated by non-banks and finance companies dropped 10-35% across asset classes in May, compared to March.

“The collection efficiency in Icra-rated securitization transactions began to decline from April onwards due to the disruption in the collection activities of the non-banking financial companies (NBFCs) and HFCs owing to the second wave induced lockdowns imposed by several state governments," the rating agency said in a statement on Friday.

The decline, it said, has been sharpest for microfinance pools where monthly collection efficiency was lower by 35% in May, compared to March. The collections for small and medium enterprise (SME) loan pools and commercial vehicle loan pools also fell significantly by around 20% from the peak achieved in March.

However, housing loans and loans against property (LAP) pools have demonstrated robust performance and remained the least impacted as compared to other asset classes given the prevailing online collection practices, an association of the borrower with the underlying collateral and the priority given by the borrowers to repay such loans.

Abhishek Dafria, vice-president and head (structured finance ratings) at Icra said that though collection efficiencies for NBFCs have suffered again in Q1, a gradual recovery has been witnessed in June with the easing of lockdowns in certain geographies.

“Most of the NBFCs have slowed down their disbursements and are focused entirely on collection efforts mirroring the trend seen last year during the first wave. However, a meaningful rebound in overall collections in Q2 remains important to arrest the rising delinquencies as seen in Icra-rated retail pools," said Dafria.

He added that a sharp improvement is quite possible given the decline in fresh covid-19 infections in the country, the increasing pace of vaccination and the increased collection efforts of the NBFCs who would be drawing learnings from their experience of monitoring and managing the borrowers last year.

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