Personal loans, commercial loans, school bus and taxi segments still experience lower collection efficiency: Ind-Ra

The sharp decline in the National Automated Clearing House (NACH) bounce rate does not fully reflect the credit health of borrowers, according to India Ratings and Research (Ind-Ra).

Bounce rate (declined transactions) data released by the National Payments Corporation of India shows continued improvement in collections since July 2021, the rating agency said.

In volume, the bounce rate fell to 30% in December 2021 from 38.1% in December 2020.

In value, the rebound rate fell to 24.4% in December 2021 from 29.2% in December 2020.

Ind-Ra believes that segments such as personal loans, business loans, school buses, taxis and heavy duty vehicles still experience lower collection efficiency – higher bounce rates.

“These have been restructured in a higher proportion and therefore the real pain in these segments is not reflected in the bounce rate data,” said Pankaj Naik, Associate Director, Ind-Ra.

Ind-Ra believes the cost of credit would be high for FY22 and slippages in the restructured portfolio may put pressure on asset quality numbers.

Restructured book

According to the agency’s assessment, generally, the restructured book is provided within a range of 10-20%. However, slippages in this book will require 15-30% additional provisioning.

As such, the NBFC space will experience moderate profitability for FY22, due to higher credit costs and higher operating expenses to meet increased business volumes and increased efforts to recoveries.

Naik noted that while economic normalization and improved cash flow contributed to the decline in the bounce rate, it also benefited from the relief/support received by a portion of non-bank borrowers in the form of restructuring and Emergency Credit Line Guarantee Scheme (ECLGS).

The restructured portfolio of the top 11 non-banking financial companies (NBFCs) represented approximately 3% of total assets under management (through September 30, 2021) and an additional 5% of the portfolio is expected to have benefited from the ECLGS.

ECLGS funds have helped borrowers overcome the problem caused by the drying up of liquidity.

Published on

January 19, 2022

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