Collection efficiency for NBFCs and HFCs at 97-101% in April: report
The collection efficiency of non-bank financial companies and housing finance companies was in a healthy range of 97-101% in April, according to a report.
Collections had seen a modest decline of around 3% after the third wave of infections in January 2022, but recovery has been rapid, given the lesser severity of the COVID variant and limited restrictions on movement during this time. , Icra Rating said in a report on Tuesday.
The analysis is based on Icra-rated retail pools securitized by non-bank financial companies (NBFCs) and housing finance companies (HFCs).
Securitization refers to the pooling of cash-generating assets (such as mortgages, loans, and bonds) and the subsequent issuance of securities in capital markets backed by these collateral pools.
“NBFC and HFC collection efficiency has been healthy, in the range of 97-101% at the start of FY2023,” the report said.
Good collection efficiency was seen in its April-rated securitized pools, which should have remained strong in May, he added.
With business activity close to pre-Covid levels for most sectors, coupled with a heavy focus on recoveries by NBFCs and HFCs, concern over the effectiveness of recoveries, at least from the non-restructured portfolio of financiers , has eased, the agency said.
In addition, the tightening of pool selection criteria by investors for securitized pools and the strengthening of prevailing credit assessment processes and parameters by lenders following the emergence of COVID have also had a positive impact. on the overall effectiveness of collection, he said.
The agency’s Vice President and Group Head (Structured Finance Rating), Abhishek Dafria, said collection efficiency should remain largely flat this fiscal year, as long as we don’t see any new wave of COVID resulting in lockdowns by governments.
Any increase in infections for shorter periods would still not cause much concern, given the approach taken by state governments during the second and third waves where lockdowns were more localized and initiated only when necessary.
The performance of secured asset classes, particularly mortgage-backed loans, has been stronger than that of unsecured asset classes during the COVID period.
For example, housing loan pools saw a marginal decline of around 2-3% in collection efficiency due to the start of the third wave, but reached 100% by March 2022 itself, Dafria said.
The unsecured lending segment, such as microfinance lending, SME lending or personal lending, saw the biggest drop in recoveries during the first and second waves of COVID, according to the report.
However, the uninterrupted business environment seen over the past 9-10 months has improved the ability of these borrowers to repay as their ability to generate income has increased.
“As a result, there has been a significant improvement in collection efficiency for these unsecured asset classes over this period,” he said.
Samriddhi Chowdhary, Vice President and Co-Group Head (Structured Finance Rating) at the agency, said that over 90 delinquencies saw a significant drop of 2-3% for microfinance and SME pools not secure compared to the peaks seen in the first quarter of fiscal 2022.
Collection efficiency rebounded to healthy levels of 97% for Icra-rated microfinance pools and 98% for Icra-rated SME pools in April 2022, she said.
Collections are expected to remain strong throughout the first quarter of fiscal 2023, she added.
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