Post rebounding to the pre-pandemic level in Q4 FY2021, the monthly collection efficiency of the ICRA-rated retail loan pools originated by NBFCs and HFCs dropped by around 10-35% across asset classes in May 2021 compared with March 2021. The collection efficiency in ICRA-rated securitisation transactions began to decline from April 2021 onwards due to the disruption in the collection activities of the NBFCs and HFCs owing to the second wave induced lockdowns / restrictions imposed by several state governments. The decline has been sharpest for microfinance pools where monthly collection efficiency (including advances and overdue collections) was lower by 35% in May 2021 compared to March 2021. The collections for SME loan pools and commercial vehicle loan pools also fell significantly by around 20% from the peak achieved in March 2021. However, housing loans (HL) and loans against property (LAP) pools have demonstrated robust performance and remained the least impacted as compared with other asset classes given the prevailing online collection practices, association of the borrower with the underlying collateral and the priority given by the borrowers to repay such loans.
Giving more insights, Mr. Abhishek Dafria, Vice President and Head – Structured Finance Ratings at ICRA, says, “Though collection efficiencies for NBFCs have suffered again in Q1, due to second wave of pandemic induced lockdown/restrictions, a gradual recovery in the same has been witnessed in June 2021 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. We feel a sharp improvement is quite possible given the decline in fresh Covid 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. Nonetheless, a further surge in Covid infections that may force State Governments to continue with the current lockdowns would be an area of concern.”
Due to the absence of relief measures, such as the moratorium provided in the previous year, the cash flows of businesses and income generation ability of borrowers has been impacted significantly during second wave of the pandemic thereby affecting their repayment capability, across asset classes. Accordingly, the incremental slippages in the softer buckets (0-30, 30-60 and 60-90 days past due, i.e. dpd) in ICRA-rated retail loan pools have seen material rise in May 2021 compared to the previous months indicating higher incremental build-up of fresh stress in the respective asset classes. The rise in 90+dpd delinquency has been highest in unsecured SME loan and microfinance loan pools at 4% and 3.1% as of May 2021, respectively, compared with 2.5% in March 2021.
Adds Mr. Mukund Upadhyay, Assistant Vice President and Sector Head – Structured Finance Ratings, “The 90+ delinquency is expected to be at the peak levels in May 2021 and would witness some reduction in June 2021 on the back of resumption in business and collection activities of the lenders, assuming there are no extensive lockdowns in the next two-three months in the major states due to the pandemic. In our opinion, to contain the asset quality deterioration, lenders may utilize the restructuring scheme announced by the regulator for the borrowers facing temporary stress. Improvement in asset quality should be gradual and in-line to the trend seen during the last fiscal year. For the ICRA-rated securitisation transactions, the credit enhancements available in the structures should provide adequate support to meet investor payouts even during this period of relatively weaker collections.”
