NPA’s of NBFC, May jump up to 4.5-5% by March 2022


Credit rating agency ICRA(Investment Information and Credit Rating Agency of India Limited) on 1st June, Tuesday in the study said that the second wave of Covid-19 pandemic and the subsequent lockdowns would impact the Non-Banking Finance Companies (NBFCs) for a longer period, which will lead a way to increase in their bad debts and dip in collection deficiencies.

According to reports stated, 25-30% of collections are done by NBFCs which happens through on-field visits and mostly comes up via cash, these collections are halted up after the first wave of coronavirus, but the second wave has arisen that debt recovery against those loans moratorium.

The on-field share collections for NBFCs are higher at about 35-40 % as compared to housing finance companies to 5-10 %, as they target the customers who have a good credit ratio.

ICRA said that NBFCs reported Non-performing Assets(NPA’s) to be increased to 4.5-5 % by March 2022 which was about 4% in December 2020. This in turn would keep the earnings of NBFCs restrained in a current financial year, about 30% lower than the pre-covid times.

From an average default rate in collections at 2-3% in pre-covid times, non-NBFCs are now seeing an increase of 6-8% of borrowers defaulting in their payment schedules during the second wave of the pandemic.

NBFCs hit with a drop in installment collections due to coronavirus pandemic, strict lockdown across the Nations, NBFCs lenders are slowing disbursements and even halted them for unsecured loans and collections from the borrowers.

The collection efficiency of loans has been used which keeps on an increase in NPA’s by 50-100 basis points, in April 2021 as compared to March 2021 according to rating agency ICRA.

With the possibility of lockdowns extending into June too for most states and might there is some normalization from July-August when lockdown lifts completely, non-banks i.e NBFCs are set to witness roll-back stronger in coming months from due collections and delay in recoveries, which could pushup that recovery and fall in NPAs in near future.

ICRA estimates that about 50% of the non-banking assets i.e. NPAs are covered by the Top-5 states which have the high no. of Covid-19 cases namely Maharashtra, Uttar Pradesh Kerala, Karnataka, and Tamilnadu. 

Although the major steps were taken by the entities i.e. NBFCs to offer online loans and liquid nature of security which provides ease and comfort on the collection of dues from borrowers and ensures ultimate loan recovery as per the agency.

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