Securitised pool collection ratios dip during second Covid wave: Crisil

Rating agency Crisil Ratings Wednesday said collection ratios in securitised pools have seen a dip during the second wave of the Covid-19 pandemic.

The agency said unlike in the first wave, the decline in the second wave has not been as sharp for two reasons - localised restrictions limited the impact on business activity, and lack of moratorium from lenders meant that borrowers could not postpone their debt repayments.

Its Senior Director and Deputy Chief Ratings Officer Krishnan Sitaraman said 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.

"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," he said.

Securitisation is the process of pooling and repackaging of homogenous illiquid financial assets into marketable securities that can be sold to investors.

Non-banking financial companies (NBFCs) have been also reworking their collection process since the onset of the pandemic by increasingly adopting electronic modes such as auto-debit, payment gateways and dedicated applications, the agency said in a report.

Such productivity enhancement was one of the reasons for the sharp recovery in collection ratios of securitised pools during the second half of last fiscal, it said.

"As more businesses set up online modes for business continuity, their cash flows become less prone to disruption," the report said.

Mortgage loans remained the most resilient of all asset classes.

The agency said while commercial vehicle loans saw a dip in median collection ratios of almost 11 percentage points in May 2021, it expects the collections to improve going forward in line with the recovery expected in the economic activity.

MSME (micro, small and medium enterprises) and microfinance borrowers are relatively more vulnerable and pools comprising these asset classes reflect as much with decline in median collection ratios in May 2021 of 12 percentage points and 6 percentage points, respectively, it said.

The report said 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.

While the focus is on collections from borrowers, lenders would benefit also by evolving suitable business models embracing digitisation for origination as well, it said.

"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," the agency's Senior Director Rohit Inamdar said.