Collection efficiency spikes in NBFCs, hopes of normalcy by Diwali: Report

NBFCs have ramped-up their collection infrastructure aggressively and growth is visible across product segments, a report by Motilal Oswal said.

The brokerage said the report was prepared following its annual general investor conference, which saw participation from 15 non-banking finance companies (NBFCs).

"With improving macros across most business segments, there was increased optimism on collection efficiency as well as on growth across product segments. In retail lending, at least 15-20 per cent improvement was seen in collections over the last two months.

"Overall collection efficiency was at 70-75 per cent for micro loans, at 80-90 per cent for vehicle finance, and at 85-90 per cent for affordable housing across financiers in August 2020," the report said.

All companies have ramped-up their collection infrastructure aggressively, and there are talks of near-normalisation of collection efficiency in most products by Diwali, it said.

While certain retail lending segments may require restructuring, this would be limited to less than 10 per cent of the portfolio, it added.

In terms of restructuring, most financiers await trends in collections in September, given the end of the moratorium and the KV Kamath committee recommendations, it said.

Motilal Oswal said the improving liquidity and higher risk appetite on account of better collection performance have given companies the confidence to lift disbursements.

"Improvement in the rural segment is a consensus view of most participants. Mass and affordable housing have been the key growth drivers for most housing financiers. While disbursements for vehicle financiers are likely to decline 40-50 per cent year-on-year in FY21, AUM (asset under management) is likely to grow in the low single digits.

"Housing finance players are likely to witness normalisation in disbursements by Nov-Dec'20, resulting in just 10-20 per cent year-on-year decline in disbursements for the year," it added.

Infrastructure finance has been largely stable given the operational nature of the assets.

The SME and MSME segments have also seen healthy improvement in disbursements and collections as businesses are operating at 65-70 per cent of earlier levels, it said.

"Gold loan companies continue to be on a strong footing and have witnessed much stronger disbursements in 2Q v/s 1Q.

"In micro-finance, while the overall collection efficiency is improving, geographic performances are mixed, with states such as Maharashtra, Tamil Nadu, West Bengal, and Odisha seeing challenges. However, disbursements are yet to resume properly for most entities," it noted.

In wholesale lending, certain real estate, hospitality and toll road projects may require restructuring, the report added.