ICRA reports better collections in NBFCs and HFCs

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ICRA reported that the collection efficiency of NBFCs and HFCs had improved in September. The industry showed enhanced collection efficiency despite the economic slow down due to the pandemic. ICRA is an independent credit rating agency. A highlight of the report is that many customers cleared their overdue and opted for pre-payments.

ICRA research said that the collection efficiency of the ICRA-rated retail pool showed significant improvement in September in almost all asset classes. The retail pool largely consists of Non-Banking Finance Companies (NBFCs) and Housing Finance Companies (HFCs). As per ICRA reports, enhanced collection efficiency could be attributed to sharper collection efforts of the companies, ease in restrictions, improvement in economic and business activities during the second quarter, and lower-than-estimated impact of the pandemic in the rural and semi-urban area. It also said that eliminating further rounds of lock-downs/ restriction also aided in increased collections.

Abhishek Dafria, Vice President and Head – Structured Finance Ratings at ICRA said that the current collections continue to lag behind pre-COVID levels. The improvement in collections was strong during the first half of the fiscal year. In September 2020, a spike in defaults was reported in softer buckets, followed by the end of the moratorium in August 2020. ICRA report noted that entities and pools that reported a better recovery in collections had a strong collection team, better geographical distribution, and the borrowers were engaged in essential goods or business activities. These entities were less impacted by the pandemic.

As per the reports, home loans and loans against property reported the lowest slippages. Due to reduced interstate transport, the commercial vehicle segment reported the highest default rate. ICRA report stated that weak collections during the moratorium period did not result in cash collateral utilization for the transaction. The investors provided a moratorium on the PTC (pass-through certificate) payouts in line with the moratorium offered to retail borrowers. As of September 2020, about 4% of the transactions in the rated portfolio witnessed cumulative cash collateral utilization of more than 10%.

ICRA Limited, formerly known as Investment Information and Credit Rating Agency of India Limited was established in 1991 as an independent agency by leading financial institutions, and commercial banks. Moody’s Investors Service is the indirect largest shareholder of the company.

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