NBFCs' loan collections improved in September quarter, says report

Non-bank lenders have witnessed a good rise in loan collection efficiencies in the September quarter after the reverses in the first three months of the fiscal, a ratings agency said on Tuesday.

The build-up in provisions will help non-banking finance companies (NBFCs) against incremental uncertainties, Icra said in a report, adding that such bodies are carrying about 50 per cent higher provisions at 3.1 per cent of the assets under management (AUM) as against 2 per cent in the year-ago period.

Most companies have reported collection efficiencies between 85-95 per cent levels in September, as against 70 per cent in August and 65 per cent in July for non-bank finance companies. For housing finance companies (HFCs), the same was 81 per cent in August and 78 per cent in July.

"The improvement is partly due to the closure of loan moratorium to borrowers because of the COVID-19 disruptions and given the fact that collections are typically higher in the last month of the quarter than during other months," Icra's sector head for financial sector ratings, A M Karthik, said.

The six-month moratorium benefitted the borrowers, helped further by the improved cashflows due to easing of lockdown restrictions and resumption of economic activities in Q2 (July-September period), the agency said.

Initial feedback suggests that collection efficiencies in October 2020 are similar to or marginally better than the September levels, it said, adding most players have indicated loan restructuring at around 5-6 per cent levels, which is below Icra's estimates of 5-10 per cent.

While lower-than-expected restructuring indicates the lower stress expectation of the players, the collection efficiencies are still about 5-15 per cent lower than pre-COVID levels.

The non-performing assets/GS3 (gross stage3) assets, as of September 2020, not adjusted for the Supreme Court order on NPA classification, registered a decline after three quarters, as the prolonged moratorium restricted forward flow into the harder buckets of loans overdue for over 90 days, it said.

The reduction was largely in the retail-NBFC segments aided by recoveries/resolutions, while HFC overdues remained stable due to the asset stickiness and continued stress in the loan against property (LAP) and corporate/construction finance exposures.

Going forward, slippages are expected as most borrower segments, including vehicle finance, small businesses, real estate, corporate credit and microfinance, have been significantly impacted, it said, but added that slippages will be lower than expected.

The NBFC AUMs will contract by 2-4 per cent in FY21 as the wholesale exposures - corporate/ real estate are steadily being run down, while retail-NBFC AUM is expected to grow at up to 1.5 per cent. The HFCs will see a 5-8 per cent growth in FY21.

"Overall Non-bank growth is expected to revive in the next fiscal, on the back of lower base and expected uptrend in demand," the agency said, maintaining its negative outlook on the sector.