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The average collection efficiency in ICRA-rated securitised retail pools originated by Non-Banking Finance Companies (NBFCs) and Housing Finance Companies (HFCs) improved significantly during Q2 FY22 on the back of continued decline in fresh Covid infections during the June to October 2021 period, a high share of vaccinated population and uninterrupted operational activities of these entities.

Collection efficiency, including overdue collection, for the most affected asset classes, viz microfinance and SME loans, reached close to 100 per cent for September 2021 from a low of 80 per cent seen in May 2021.

Collections in the housing loan segment continued to remain healthy during Q2 FY2022, post swiftly recovering to pre-second wave level in June 2021.

Further, the collections in commercial vehicle (CV) loans have also improved to more than 100 per cent by September 2021 driven by higher inter/intra-state movements upon revival of businesses/mining/factory production activities driving movement of raw materials/final products backed by increased consumer demand owing to various festivals in Q2 FY2022.

Abhishek Dafria, Vice President and Head, Structured Finance Ratings, ICRA, said: "With the operations of lenders achieving close to normalcy levels in Q2 FY2022, the monthly collection efficiencies recovered to pre-second wave levels across the asset classes as observed in ICRA-rated securitised pools. While the possibility of another wave of fresh Covid infections remains, the likelihood is reducing as the proportion of vaccinated population has been on a steady rise.

"We thus expect collections to remain healthy for the near term. The 90+ delinquencies have seen a decline as of September 2021 compared to the peak seen in May 2021, but remain much higher than the pre-Covid levels for most asset classes. Majority of the lenders have reported lower bounce rates in their portfolio led by the improvement in collections on the back of uninterrupted operational activities. With stable business environment expected to continue, we expect stable credit performance of ICRA-rated securitisation pools."

ICRA has also observed that with the resumption of normalcy in business and operational activities, the collection performance of securitised retail pools post the first wave (i.e. September 2020), especially for the more affected unsecured lending sector (i.e. unsecured SME and microfinance loans), remained robust and better than the pools originated prior to the same.

This is on account of tightening of pool selection criteria by the investors and strengthening of better-quality loans in the prevailing credit appraisal processes and parameters by the lenders to ensure addition of better-quality loans in the portfolio.