The collection efficiency for non-banking financial companies (NBFC)s and housing finance companies (HFC)s has been healthy in the range of 97 percent to 101 percent at the beginning of FY2023, as per an analysis done on ICRA-rated retail pools securitised by NBFCs and HFCs. The same remains in line with the trajectory of improvement seen for most of H2 FY2022 as the impact of the second wave of the COVID-19 pandemic subsided, ICRA said in a report.
The collections had seen a modest decline by about 3 percent following the third wave of infections seen in January 2022 but the recovery was prompt given the lower severity of the COVID variant and limited restrictions on movements during this period.
With business activities close to pre-COVID levels for most sectors coupled with a heavy focus on collections by the NBFCs and HFCs, the concern on collection efficiency, at least from the non-restructured portfolio of the financiers, has reduced. Further, tightening of pool selection criteria by the investors for securitised pools and strengthening of prevailing credit appraisal processes and parameters by the lenders following the emergence of COVID has also had a positive bearing on the overall collection efficiency.
Abhishek Dafria, Vice President and Group Head - Structured Finance Ratings, ICRA, says, “The collection efficiency is expected to remain largely stable this fiscal as long as we do not see any fresh COVID waves that result in lockdowns by the governments. Any rise in infections for shorter periods of time would still not cause much concern considering the approach followed by State Governments during the second and the third waves where the lockdowns were more localised and initiated only if necessary. Performance of secured asset classes, especially mortgage-backed loans, have been stronger than the unsecured asset classes during the COVID period. For instance, housing loan pools witnessed marginal decline of about 2-3 percent in collection efficiency due to onset of third wave but reached 100 percent in March 2022 itself.”
The unsecured loan segment, such as microfinance loans, SME loans or personal loans, had seen the sharpest decline in collections during the first and second COVID waves. However, the uninterrupted business environment seen over the past 9-10 months has improved the repayment capability of such borrowers as their income generating ability has increased. As a result, there has been a material improvement in the collection efficiency for such unsecured asset classes during this period.
Samriddhi Chowdhary, Vice President and Co-Group Head - Structured Finance Ratings, “The 90+ delinquencies have seen a material decline of 2-3 percent for microfinance and unsecured SME pools from the peaks seen in Q1/Q2 FY2022. The collection efficiency bounced to healthy levels of 97 percent for ICRA-rated microfinance pools and 98 percent for ICRA-rated SME pools in April 2022. The collections are expected to remain strong for the entire Q1 FY2023. ICRA has not downgraded any transaction during the quarter and expects healthy collections to be maintained and supported by a stable business/operating environment for the remainder of the year. We also expect investor confidence to be boosted by the recovery seen across all asset classes which should result in higher securitisation volumes in FY2023 compared to the previous year.”