Photo by Anna Shvets from Pexels
Photo by Anna Shvets from Pexels
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Crisil Ratings on Wednesday said that with extensive recovery efforts by non-banking financial companies (NBFCs) and uptick in economic activity, the collection efficiency ratios of its rated securitised pools for November 2020 payouts have improved to near pre-COVID-19 pandemic levels for most of the asset classes.

The median collection efficiency ratios for November 2020 payouts (October 2020 collections) improved to their highest levels in the financial year 2020-21, it said.

Payout months lag collection months by one. Consequently, November 2020 payouts pertain to October 2020 collections.

"The monthly collection efficiencies of most Crisil-rated securitised pools are almost at pre-pandemic levels. That's because economic activity has been gathering steam in recent months, and agricultural activity, which was less impacted, has steadily picked up, too," the agency's Senior Director Krishnan Sitaraman said.

He added that as cash flows improved, borrowers have started repaying their loan instalments.

Median collection ratios for November 2020 payouts for commercial vehicle loan pools jumped up to 93 per cent from a paltry 24 per cent in May 2020. That compares with 98-99 per cent in January-March 2020, the rating agency said in a report said.

Collection efficiency for mortgage-backed loans, comprising largely home loans and loans against property, were around 96 per cent in October-November 2020. In comparison, median collection ratios were 99 per cent in March 2020 and around 71 per cent in June 2020.

However, pools backed by loans to small and medium enterprises (SMEs) saw a slight drop in collection efficiency in November, as underlying businesses and borrower cash flows are yet to achieve stability.

Median collection efficiency of pools backed by microfinance loans, which saw a precipitous decline in April and May 2020, had recovered sharply to above 70 per cent for September payouts. The ratios were at 82 per cent for November 2020 payouts, still below business-as-usual levels of 98-99 per cent, it said.

"Microfinance borrowers are considered most susceptible to economic vagaries, and their progression towards pre-pandemic business levels was expected to be gradual and incremental," the agency said.

However, as NBFCs in general, including microfinance institutions, further intensify collection efforts, underlying pool collections should continue to improve, it added.

The report further said NBFCs have also improved their collection processes in the recent past. Previously, digital modes were considered secondary to the traditional, physical cash collection process.

However, in the past six months, lenders have leveraged technology and redoubled efforts on the digital side. Many NBFCs now offer both facilities to borrowers for repayments, it said.

"While digitalisation is a low-cost and efficient tool, pool collections will continue to be influenced by economic factors. The imposition of localised restrictions could also impact business cash flows and thereby, collections," the agency's Senior Director Rohit Inamdar said.

After the November 2020 payout, there is an adequate credit cover at outstanding rating levels for most Crisil-rated transactions.

The rating agency said it will closely monitor securitised pools under its surveillance, including collection ratios, past trends, and underlying asset quality. It will also take appropriate rating actions in the event of slower recovery in collections over the next few months, or higher-than-anticipated delinquencies.

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