Domestic rating agency Icra Ratings on Thursday said the monthly collection efficiencies of its rated securitised retail pools originated by NBFCs and HFCs for June 2021 increased by 7-10 per cent over the previous month.
The collections in July have continued to maintain an upward trajectory, the agency said in a report.
"With the gradual ease in restrictions from June 2021 across many states, the monthly collection efficiencies increased by 7-10 per cent over the previous month across the asset classes as observed in ICRA-rated securitised pools," the agency's Vice President and Head (Structured Finance Ratings) Abhishek Dafria said in the report.
The agency said the collections in retail pools securitised post the first wave (i.e. September 2020), especially for the more affected unsecured lending sector, have fared better than the pools originated prior to the same.
This is on account of tightening of the prevailing credit appraisal processes and parameters by the lenders to ensure addition of better-quality loans in the portfolio coupled with stringent loan selection criteria, it said.
Dafria said any surge in Covid infections or onset of third wave would derail the recovery in collections.
"So far we are seeing localised events unfold such as opening up of Maharashtra whereas newer restrictions being imposed in Kerala will affect entities concentrated in those regions and not the entire industry," he said.
Despite the absence of relief measures, such as the moratorium provided in the previous year, the impact of second wave on the overall economic and business activity was not severe, the agency said.
However, the rural and semi-urban areas of the country were affected more by the second wave compared with first wave. This affected the repayment capability.
Resultantly, the recovery in collections of the weaker profile borrowers in microfinance loans has remained lower, it said.
A similar lower collection recovery trend is evident in unsecured SME loans because the broader economic and business activities are yet to achieve normalcy levels.
"Such borrowers' repayment ability (i.e. microfinance and unsecured SME loans) was impacted by the unforeseen higher medical expenses amid lower business cash flows," the report said.
Nonetheless, collections in the housing loans (HL) witnessed the swiftest recovery in June 2021 since they were least impacted as seen during last fiscal year.
Also, the collections in commercial vehicle (CV) loans have also seen considerable improvement.
The agency's Assistant Vice President and Sector Head (Structured Finance Ratings) Mukund Upadhyay said the 90+ delinquencies have declined in June 2021 compared to May 2021 across asset classes as the majority of the lenders have reported lower bounce rates in their portfolio led by the improvement in collections.
Basis the stable collections and lower bounce rates being reported by several originators in their portfolio for July 2021, the asset quality will improve further in Q2 FY2022, he said.
This improvement will happen as entities would continue to focus and strengthen their collection efforts at a greater intensity to reduce the slippages given the uncertainty prevailing regarding the third wave amid moderate pace of vaccination drive, he said.
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