The collection ratios of securitized pools fall during the second wave of Covid: Crisil
Credit rating agency Crisil Ratings said on Wednesday that collection ratios in securitized pools fell during the second wave of the Covid-19 pandemic.
The agency said that, unlike the first wave, the decline in the second wave was not so marked for two reasons: localized restrictions limited the impact on business activity and the lack of a moratorium on lenders meant that borrowers could not defer paying off their debt.
Its senior manager and deputy scoring manager Krishnan Sitaraman said in the first wave that collections fell as the majority of borrowers received relief from the moratorium and collection staff were unable to. move around due to strict blockades.
“This prompted many funders to explore digital collection, a path that played an important role in preventing a similar decline in collections during Wave 2,” he said.
Securitization is the process of pooling and repackaging homogeneous illiquid financial assets into marketable securities that can be sold to investors.
Non-bank financial corporations (NBFCs) have also reworked their collection process since the start of the pandemic by increasingly adopting electronic modes such as automatic debit, payment gateways and dedicated applications, the agency said. in a report.
This improvement in productivity was one of the reasons for the strong recovery in recovery ratios of securitized pools in the second half of the previous fiscal year, he said.
“As more and more companies implement online modes for business continuity, their cash flow becomes less prone to disruption,” the report said.
Mortgages remained the most resilient of all asset classes.
The agency said that while commercial vehicle loans saw median collection ratios drop by nearly 11 percentage points in May 2021, it expects collections to improve in the future in accordance with the expected resumption of economic activity.
MSMEs (micro, small and medium-sized enterprises) and microfinance borrowers are relatively more vulnerable and the pools comprising these asset classes reflect the decline in median collection ratios in May 2021 of 12 percentage points and 6 points. percentage, respectively, he said.
The report says that as the second wave subsides, financial institutions should make their business models more robust to build resilience to such disruptions into the normal course of business.
While the focus is on borrower collections, lenders would also benefit from evolving appropriate business models that also encompass digitization for origination, he said.
“As the country moves towards pre-pandemic normal in several other aspects, digital collections are expected to continue, and digital montages could also gain ground, given the low cost of their management and the ease they offer. to borrowers, “said the director of the agency. said director Rohit Inamdar.
(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)