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Originations above pre-Covid level except for BL; fresh delinquencies and roll fwd. in control, recoveries increase

We had organized DSA & Collection Day wherein we hosted a large pan-India multiproduct DSA and big Collection Agencies from South and North regions. The headline takeaways are a) originations across products, except for BL and CV Loans, have reverted or are higher than pre-Covid levels for most lenders, b) stronger activity seen in products like HL, LAP, PL and Car Loans with rate aggression for creamiest customers, c) resolutions (incl. normalizations) in early delinquency buckets have improved and roll fwd. rate has come-off aided by restructuring, d) recoveries/settlements have increased, and offered from Bucket 3 (60-90 dpd) and e) new case allocations in the first collection bucket have tapered from AMJ levels.

These trends imply a sharp revival in growth for lenders since June and stabilization of delinquent buckets (1+ dpd; suggesting not much spill-over of credit cost) underpinned by decline in bounce rate, restructuring optically improving resolution & normalization rates in soft buckets and encouraging recoveries (more settlements) in hard buckets. If no third wave, then behavior of restructured and ECLGS pools will be the key monitorables. Within our coverage of SFBs, HFCs & NBFCs, the concurrent business and asset quality trends are more positive for HDFC, BAF, CIFC, Home First, Aavas, AU SFB and Equitas SFB.

Summary Takeaways from DSA Session

* Home Loan: 1) Originations fell in August over a strong July due to expiry of stamp duty benefit in MH, but Sept volume should revert to July, 2) HDFC comfortably maintaining market position despite rate aggression from banks, 3) Portfolio quality holding out even in assessed income affordable HL segment.

* LAP: 1) Originations 15-20% higher than 2019 levels, 2) BT for Top-up Loans and lower rates forms 30-35% of market volumes (offered to strong customers only).

* Business Loans: 1) Tepid recovery in business volumes for most lenders as they remain cautious due to higher delinquencies, 2) BAF an outlier with originations crossing pre-Covid levels.

* Personal Loans: 1) Originations at or higher than pre-Covid run-rate for most lenders, 2) Not much change in loan ATS, 3) Rates have come down to 10.5-11%, goes to 10.25% in BT.

* Cards: 1) Sourcing mainly focused on internal customers, 2) HDFC Bank has aggressive plans and IIB is growing at brisk pace.

Summary Takeaways from Collection Agencies’ Sessions

* Except for BL and used car loans, resolutions (incl. normalizations) in early buckets are near pre-pandemic level - however, the share of actual collections is much lower due to material restructuring.

* Restructuring has brought down roll fwd. rates in buckets - NPL and hard buckets witnessing correction due to higher recovery through settlements - significant principal waiver offered by lenders.

* Moratorium offered under restructuring at 3-6 months in PL & Cards and up to 2 years in BL and CV Loans - HL and Auto Loans have least collection challenges or restructuring.

* Allocations in the first collection bucket have come down drastically in July-August due to decline in bounce rates.

* Resolution rates differ by 5-10% between Banks and NBFCs for the same productbucket combinations due to difference in customer profile/quality.

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