The third wave of COVID infections has not affected the collection efficiency of non-bank finance companies (NBFCs), says India Ratings. It has neither raised delinquency levels. The rating agency analysis highlighted that delinquencies in 1-90 days-past-due continue to be in the range of 5 to 15%.
It noted a recovery in the overall operating environment. “The commercial vehicle segment, where collection efficiencies fell 60 to 70% in the first quarter of FY22 has recovered and is close to pre-COVID levels,” the report said. In regards to microfinance loans, collection efficiency declined 20 to 25% during the second wave, but has recovered since then.
The third wave impact may not be disproportionate because it is not so much of a health crisis as it was in the second wave. India Ratings said the bounce-back shows resilience of the segments. NBFCs, having learned from the first two waves, are much better placed to handle the possible impact of the third wave. While the third wave is more rapidly spreading, the ratings agency noted that the need for hospitalization and casualty has been lower.
“The healthcare infrastructure seems to be prepared to cope with the rising numbers. The probability of a severe nationwide lockdown, at the moment, seems low with restrictions being imposed at the regional level. In absence of any restrictions, the impact on the cash flow of NBFC borrowers may remain modest. Furthermore, a large proportion of the weaker borrowers of NBFCs have witnessed a nationwide lockdown for three weeks during the first wave and regional lockdowns during the second wave,” the report said.
It highlighted that large NBFCs have strong balance sheet buffers to absorb the impact of possible disruptions. The companies have sufficient liquidity to meet at least three months of debt repayments. They also have easy access to capital markets and banks for mobilizing funds. Furthermore, an increased focus on collections and a reduced disbursement rate have helped NBFCs conserve liquidity. As such, the balance sheets have been safeguarded through higher provisions on non-performing advances and standard assets to shield the impact of incremental credit loss.