The intensity with each COVID-19 cases are rising in its second wave in India has raised concerns about asset quality of retail loans from non-banking financial companies (NBFCs) and housing finance companies (HFCs). According to a report by investment information agency ICRA, the restrictions on movement will have a bearing on collection efforts of NBFCs especially for microfinance loans where cash collections still remain dominant.
Commercial vehicle loans can also face stress if the inter-state restrictions are re-imposed, though even the current restrictions put in place in key geographies like Maharashtra and Delhi where non-essential services are closed will lead to lower fleet utilisation for operators. However, said ICRA, housing loans are expected to remain most resilient as was seen even last year given the secured nature of asset class and priority given by borrowers to repay them.
"The restrictions at present are localised and less harsh, but the severity has been gradually increasing as the surge in Covid cases is yet to be brought under control," said Abhishek Dafria, Vice President and Head-Structured Finance Ratings at ICRA. Securitisation volumes had dropped to a quarterly record low of Rs 7,500 crore in Q1 FY21 due to nationwide lockdown though had seen healthy sequential growth in subsequent quarters, achieving volumes of Rs 40,000 crore in Q4 FY21.
Following the second wave of the pandemic, ICRA expects securitisation volumes to again get impacted in Q1 FY22 as NBFCs and HFCs will be more selective in fresh lending thereby reducing their financing needs while the investors for securitised pools may again exhibit a 'wait and watch' approach.
"Securitisation of microfinance and SME loans which had seen a 70 percent year-on-year decline in FY21 will face the brunt," said Dafria. "If the rise in Covid cases is brought under control soon with limited impact on economic activities, we expect overall securitisation volumes to witness a 40 to 50 percent in FY22 with a high proportion of securitisation happening in second half of the fiscal."