Extensive recovery efforts by non-banking financial companies (NBFCs) coupled with the recent uptick in economic activity, has lifted the median collection efficiency ratios of CRISIL-rated securitised pools for the November 2020 payouts (October 2020 collections) to their highest levels in fiscal year 2021, and near pre-Covid pandemic levels for most asset classes, said the rating agency in its report on Wednesday.
The collection of loan instalments had substantially reduced in the immediate aftermath of 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, the report added.
Later, as the unlocking process gathered pace, lenders mobilised their on-ground recovery staff to ramp up collections.
Krishnan Sitaraman, Senior Director, CRISIL ratings, said,"The monthly collection efficiencies of most CRISIL-rated securitised pools are almost at pre-pandemic levels. That is because economic activity has been gathering steam in the 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."
The median collection ratios for November 2020 payouts for commercial vehicle loan pools jumped up to 93 per cent from a paltry 24 per cent in May 2020 as compared with 98 to 99 per cent during January-March 2020. Collection efficiency for mortgage-backed loans comprising largely home loans and loans against property, were nearly 96 per cent during October-November 2020. In comparison the median collection ratios were 99 per cent in March 2020 and nearly 71 per cent in June 2020.
However, pools backed by loans to small and medium enterprises (SME) saw a slight drop in collection efficiency in November, as underlying businesses and borrower cash flows are yet to achieve stability.
Median collection efficiency of pools backed by microfinance loans, which saw a precipitous decline in April and May 2020, had recovered sharply to above 70 per cent 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. The median collection ratios were at 82 per cent for November 2020 payouts, still below business-as-usual levels of 98 to 99 per cent.
Microfinance borrowers are considered most susceptible to economic vagaries and their progression towards pre-pandemic 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.
NBFCs have also improved their collection processes in the recent past. Previously, digital modes were considered secondary to the traditional and physical cash collection process. However, in the past six months, lenders have leveraged technology and redoubled efforts on the digital side. Many NBFCs now offer both facilities to borrowers for repayments.
Rohit Inamdar, Senior Director, CRISIL ratings, said,"While digitalisation is a low-cost and efficient tool, pool collections will continue to be influenced by economic factors. The imposition of localised restrictions could also impact business cash flows and thereby, collections. Broad-based economic recovery is the best way to prevent local issues from creating asset-quality challenges."