“In the first wave, collections fell as the majority of borrowers received relief from the moratorium and collection staff were unable to travel due to the strict lockdowns,” said Krishnan Sitaraman, senior manager and Deputy Rating Director, CRISIL Ratings. “This prompted many funders to explore the digital collection – an avenue that played an important role in preventing a similar decline in collections during Wave 2.”
NBFCs have reworked their collection process since the start of the pandemic by increasingly adopting electronic modes such as direct debit, payment gateways and dedicated applications. As more companies implement online modes for business continuity, their cash flow becomes less prone to disruption, Crisil noted.
Mortgage loans remained the most resilient of all asset classes, according to agency estimates. For mortgages and even commercial vehicles, the median collection ratio for the April 2021 payment was higher than the pre-pandemic average, indicating a sharp increase in collections towards the end of fiscal 2021.
While commercial vehicle loans saw median recovery ratios decline by almost 11 percentage points in May 2021, Crisil expects recoveries to improve going forward in line with the expected recovery in the l ‘economic activity.
MSMEs and microfinance borrowers are relatively more vulnerable with a decline in median collection ratios in May 2021 of 12 percentage points and 6 percentage points respectively.
The imposition of localized lockdowns and the spread of the pandemic impacted borrower’s cash flow and also resulted in restrictions on the movement of lender collection staff. In addition, the health of a number of borrowers and collection staff has also been affected as a result of the pandemic.
However, the impact on collections was much less compared to the first wave where a fairly large number of borrowers took advantage of the moratorium and did not pay their installments.
Interestingly, pools backed by two-wheeled loans have so far seen a relatively smaller impact from Wave 2. These borrowers appear to have benefited from the government’s focus on rural areas and the emphasis on agriculture, ”Crisil noted.
As the second wave subsides, financial institutions should make their business models more robust to build resilience to such disruptions into the normal course of business, the agency said.
“The timing of vaccinations will be an essential element for a full and unimpeded reopening of economic activity,” said Rohit Inamdar, Senior Director of CRISIL Ratings. “As the country moves towards pre-pandemic normal in several other aspects, digital collections are expected to continue, and digital montages could also gain ground, given the low cost of their management and the ease they offer. to borrowers. ”