Collection efficiency for retail, SME loans improves to pre-Covid levels

Icra cites decline in fresh Covid-19 cases, accelerated vaccination and uninterrupted operations of finance and housing finance entities for the better show

Collection efficiency of loans extended by finance companies, including overdues from the most-affected asset classes such as microfinance and SME, reached close to 100 per cent in September 2021 from a low of 80 per cent in May 2021.

According to rating agency Icra, monthly collection efficiency for securitised retail pools improved significantly during Q2FY22 due to the continued decline in fresh Covid-19 infections, a high share of vaccinated population and uninterrupted operations of finance and housing finance entities.

The harder bucket delinquencies, i.e. 90-plus days past dues (90+ DPD) have declined across asset classes. Given the healthy collection trend, the credit quality of Icra-rated Pass Through Certificates (PTCs) issued to investors is expected to remain stable, it added.

Collections in the housing loan segment continued to remain healthy during Q2FY22, post swiftly recovering to pre-

second wave level in June 2021. Further, the collections in commercial vehicle (CV) loans have also improved to more than 100 per cent by September 2021. The improvement is driven by higher inter and intra-state movements upon revival of businesses, and mining and factory production activities driving movement of raw materials/final products backed by increased consumer demand owing to various festivals in Q2FY22.

Abhishek Dafria, Vice President and Head-Structured Finance Ratings, Icra, said the 90+ delinquencies have seen a decline as of September 2021 compared to the peak seen in May 202. But remain much higher than the pre-Covid levels for most asset classes.

The 90+ DPD for housing and Loans Against Properties (LAP) declined for Small and Micro Enterprise loans to 2.6 per cent in September 2021 from 4 per cent in May 2021. For micro-finance it declined from 3 per cent in May to 1.2 per cent in September and in vehicle loans it fell from 2.2 per cent to 1.2 per cent.

Majority of the lenders have reported lower bounce rates in their portfolio led by the improvement in collections on the back of uninterrupted operational activities. "With a stable business environment expected to continue, we expect stable credit performance of ICRA-rated securitisation pools", Dafria added.