“In the first wave, collections fell as the majority of borrowers availed of moratorium relief and collections staff were unable to move around due to the stringent lockdowns,” said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings. “This prompted many financing entities to explore digital collection – an avenue that has played an important role in preventing a similar fall in collections during the second wave.”
NBFCs have been reworking their collection process since the onset of the pandemic by increasingly adopting electronic modes such as auto-debit, payment gateways and dedicated applications. As more businesses set up online modes for business continuity, their cash flows become less prone to disruption, Crisil noted.
As per the agency’s estimates mortgage loans remained the most resilient of all asset classes. For mortgage and even commercial vehicle loans, the median collection ratio for the April 2021 payout was higher than the pre-pandemic average, indicating a sharp uptick in collections towards the end of fiscal 2021.
While commercial vehicle loans saw a dip in median collection ratios of almost 11 percentage points in May 2021, Crisil expects the collections to improve going forward in line with the recovery expected in the economic activity.
MSME and microfinance borrowers are relatively more vulnerable with decline in median collection ratios in May 2021 of 12 percentage points and 6 percentage points respectively.
Imposition of localised lockdowns and spread of the pandemic resulted in the borrower’s cash flows getting impacted and also led to restrictions in the movement of the collections staff of lenders. Further, the health of a number of borrowers and collections staff was also affected due to the pandemic.
However, the impact on collections was far lesser compared to the first wave when quite a large number of borrowers availed the benefit of moratorium and did not pay their instalments.
Interestingly, the two wheeler loan backed pools have seen a relatively lower impact of the second wave so far. These borrowers seem to have benefitted from the government’s focus on rural areas and thrust on agriculture,” Crisil noted.
As the second wave subsides, financing institutions are expected to make their business models more robust to incorporate resilience to such disruptions in their normal course of business, the agency said.
“The pace of vaccinations will be a critical input for a full, unhindered reopening of economic activity,” said Rohit Inamdar, Senior Director, CRISIL Ratings. “While the country moves towards pre-pandemic normal in several other aspects, digital collections are expected to continue, and digital originations may also make their way, given the low cost of managing these and the ease they offer to borrowers.”