Restrictions in movements imposed by various states are likely to impact collections of non-banking financial companies (NBFCs) and housing finance companies (HFCs), which may see NPAs rising to 4.5 – 5 per cent by March 2022, says a report.
Icra Ratings said non-banks (NBFC and HFCs) will feel the stress of the second wave of COVID-19 and movement restrictions imposed by various states in April-May 2021, given the fact that 25-30 per cent of their loan collections happen through field collection teams and largely via cash.
“We expect the non-bank reported NPAs to increase to about 4.5-5 per cent by March 2022 vis a vis about 4 per cent in December 2020.
“This in-turn would keep the earnings subdued in the current fiscal; about 30 per cent lower than the pre-Covid levels,” the agency’s sector head (financial sector ratings) Manushree Saggar said in a release.
Loan collections by non-banks, which were impacted by the nation-wide lockdown and the loan moratorium till August 2020, saw a steady revival during the third and fourth quarters of FY2021, the agency said.
It expects this budding recovery to be stemmed by the second wave of the pandemic, which has led to localised lockdowns in various states starting mid-April 2021.
With most states implementing stricter lockdowns in May 2021, collections efforts witnessed a major setback in the month, compounding the 5-10 per cent (vis-a-vis March 2021) dip in collections reported by most of the players in April 2021, it said.
“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,” Saggar said.
Write-offs, like the last fiscal, are also expected to remain elevated vis a vis the prior year trends, she said.
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, she added.
The agency said within non-banks, the share of field collections are higher for NBFCs at about 35-40 per cent, while the same for HFCs is about 5-10 per cent.
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.
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However, initiatives taken by entities to offer online loans and the liquid nature of security provides comfort on collection and ultimate loan recovery, the agency said.
