Second wave Covid-19 may stem budding recovery
ICRA Ratings has said that Non-banks (NBFC+HFC) will feel the stress of the second wave Covid–19 lockdowns and movement restrictions imposed by the various states in April-May 2021, given the fact that 25-30% of their loan collections happen through the field collection teams and largely via cash.
Loan collections by non-banks, which were impacted because of the Covid-19 induced nation-wide lockdown and the loan moratorium till August 2020, saw a steady revival during Q3FY2021 and Q4FY2021, ICRA said in a release on 1 June 2021.
This budding recovery is expected to be stemmed by the second wave of the Covid-19 pandemic, which has led to localised lockdowns imposed by various states starting mid-April 2021. With most states implementing stricter lockdowns in the month of May 2021, collections efforts witnessed a major set-back in May 2021, compounding the 5-10% (vis a vis March 2021) dip in collections reported by most of the players in April 2021.
While restrictions imposed in April 2021 was largely in the second half of the month, which somewhat moderated the impact, in May 2021, most of the states tightened the lockdown implementation and it was also more widespread.
ICRA estimates that about 50% of the non-bank asset under management is in the Top-5 states with high number of Covid-19 cases, namely Maharashtra, Karnataka, Kerala, Tamil Nadu and Uttar Pradesh.
“Non-banks with higher share of field-based collections are more adversely impacted, typically, entities focusing on borrowers with limited banking habits, rural borrowers and smaller loan tickets (non-digital loans) have a higher share of their collections from field operations,” said Manushree Saggar, Sector-Head, Financial Sector Ratings, ICRA Limited,
“Also, entities resort to on-field collections to contain delayed payments and for recoveries from their overdue borrowers,” she added.
Within non-banks, the share of field collections are higher for NBFCs at about 35-40%, while the same for HFCs is about 5-10%. HFCs benefit because of the target nature of the borrowers, who typically have better credit profile.
The secured nature of their loans under the housing and non-housing segments are likely to be less impacted as also observed post the lockdown and moratorium in the last fiscal.
On the other hand, for NBFCs with exposure to microfinance, rural/semi urban borrowers with small-ticket (SME, vehicle loans) and unsecured loans (non-digital) generally have a relatively higher share of field collections.
Historically, gold loan business has been largely branch-centric which is expected to be impacted by the prevailing operating environment, however initiatives taken by entities to offer online loans and the liquid nature of security provides comfort on collection and ultimate loan recovery.
“With the likelihood of lockdowns extending into large part of June 2021 for most states and some normalization expected from July 2021, non-banks are set to witness roll-forwards into harder overdue buckets and delay in recoveries, which could push-up the overdues in the near-term,” said Saggar.
“Write-offs like the last fiscal is also expected to remain elevated vis a vis the prior year trends. ICRA expects the Non-bank reported NPAs to increase to about 4.5-5.0% by March 2022 vis a vis about 4% in December 2020. This in-turn would keep the earnings subdued in the current fiscal, about 30% lower than the pre-covid levels,” said Saggar. #banking #borrowing #economy /fiinews.com
