NBFCs pin hope on festive season for revival in credit disbursals

Collection efficiency of non-banking lenders and housing finance companies picks up

Non-banking lenders are pinning hopes on the festive season to get credit disbursal in the sector close to pre-Covid levels.
 
Experts said a lot, however, would depend on the collection efficiency the non-banking financial companies (NBFCs) achieve in September and October, coupled with the demand from various segments they cater to in the festive season.
 
“If the collection in September has been good, we expect disbursements by NBFCs to pick up. We have seen collection in most of the segments, except for commercial vehicle, to be in the 80-90 per cent range, and in some segments even higher,” said Anil Gupta, vice-president & sector head (financial sector ratings) of ICRA. “So, one will deploy some part of the collections for fresh disbursement, if there are no immediate repayment obligations. Hence, NBFCs will disburse but there will be hardly any growth in assets under management (AUM).”
 
Deo Shankar Tripathi, managing director (MD) and chief executive officer (CEO) of Aadhar Housing Finance, said the segment was seeing disbursement at almost 80-90 per cent of the same period last year. “In other segments, it has reached 70-80 per cent of pre-Covid levels. In fact, all the segments witnessed improvement in September. While demand for credit is not yet back to pre-Covid levels fully, but it is inching up to that level fast enough. Festive season is expected to see some more demand,” said Tripathi.
 
The expectation is that the festive season will increase the demand for credit among the consumers. Among the various categories of loans that the non-bank lenders offer, segments such as used cars, two-wheelers, and tractors are looking good in terms of revival in credit demand. Gold loans segment has been performing well. 
 
Aye Finance, which provides loans to micro enterprises, expects demand (for credit) to pick up in festive season as supply chains are gradually opening up. “This is giving some confidence to business owners like Sari makers (weavers) that product and services will find buyers in local markets,” Sanjay Sharma, MD & CEO, Aye Finance.
 
Sharma said the period of subdued rise in credit would extend till next festive season. This year the finance company is expecting 10-20 per cent growth in loan book in against an estimate of 50 per cent made earlier.
 
While the non-banking lenders are seeing revival in credit demand, rating agency CRISIL estimated that credit growth in the sector will be in negative zone this fiscal year, and their AUMs will decline by 1-3 per cent in FY21.

 
Ramesh Iyer, vice-chairman & MD of Mahindra & Mahindra Finance, said: “Tractor demand is very high and for all the vehicles, OEMs are now looking to stock for the festival season. The dealers are buoyant about this and they are seeing a rise in footfalls. For the heavy commercial vehicle segment, we are not seeing much pick-up in demand. But, light commercial vehicles, small three-wheeler vehicle segments, and goods carriers are doing well but the heavy commercial has not seen so much of demand.”
 
For most of the vehicle segments, the numbers should more or less look like pre-Covid levels between October and March. However, the heavy commercial vehicle segment will take a bit longer, he said.
 
Collection efficiency for the NBFCs and housing finance companies has also picked up. While moratorium uptake was higher in April and May, collections improved since June as the economy gradually opened up.
 
Till August, most of the HFCs saw collection efficiency in the range of 75-85 per cent, while in September collection efficiency is likely to be close to 85-95 per cent depending upon composition of formal or informal segment. Collections in the wholesale, MSME, and unsecured segments are still much lower than before the pandemic.
 
H P Singh, chairman and MD of Satin Creditcare Network, said these six months would see consolidation. Some growth will be seen from January 2021 on the back of better agriculture season. The demand for micro credit and SME credit in rural areas will be steady to meet essential needs.