NBFCs would have seen collection efficiencies beyond 95% in October: Analysts

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November 14, 2020 2:30 AM

Many NBFCs like Cholamandalam Investment and Finance, Shriram Transport Finance and Shriram City Union Finance have done well on the collection front, especially after the lifting of the moratorium by August 31, thanks to the opening up of businesses and the early signs of revival in the economy.

Credit Suisse on Chola said with provision coverage ratio 26% on potential stressed loans and improving collections outlook, the management believes current provision buffers are adequate and might consider reversing some of the excess from Q4 of FY21.Credit Suisse on Chola said with provision coverage ratio 26% on potential stressed loans and improving collections outlook, the management believes current provision buffers are adequate and might consider reversing some of the excess from Q4 of FY21.

The collection efficiency of non-banking financing companies or NBFCs had hovered between 87 and 95% in September and this gives the sector a reason to cheer. Analysts expect major players to further improve in October — the data for which is still in the process of compilation.

Many NBFCs like Cholamandalam Investment and Finance (Chola), Shriram Transport Finance and Shriram City Union Finance have done well on the collection front, especially after the lifting of the moratorium by August 31, thanks to the opening up of businesses and the early signs of revival in the economy.

Motilal Oswal, in an analysis on Chola, said that the company had seen 87% collection efficiency in September and this would improve to 105% in October. Of the total Chola’s moratorium, customers close to 95% have paid at least one instalment, only 5% of moratorium accounts have not paid even a single EMI for the past 6-7 months and the number is a significant improvement from the 50% a quarter ago, the analyst said.

Arun Alagappan, MD, Chola, while releasing the Q2 results recently, said: “With the six-month moratorium ending in August 31, the focus was to scale up on-field collection efforts and the company has been able to make considerable improvement in the last two months.”

Given the improvement in post-moratorium collection efficiency, the Chola management expects restructuring not to go beyond 5% of the portfolio, HSBC Global Research said in an analysis, adding consequently, the current standard loan provisions of 1.5% appear adequate at this juncture.

In an analysis, Credit Suisse on Chola said with provision coverage ratio 26% on potential stressed loans and improving collections outlook, the management believes current provision buffers are adequate and might consider reversing some of the excess from Q4 of FY21.

Shriram Transport Finance, an organised player in the financing of pre-owned trucks, said post-moratorium, the collections for September 2020 was at 95 % of the demand. According to Emkay Global Financial Services, Shriram Transport Finance has improved its collection efficiency to 95% in September with superior provision coverage of 39.7%. The firm has maintained its momentum in recoveries (part payments) and it expects the collection momentum to improve further, the analyst firm said, adding that the firm expects one-time restructuring to be opted by 3% of its portfolio.

Motilal Oswal in its analysis separately said Shriram Transport Finance could collect from 78% of borrowers in August as compared to 52% in June. However, collections in September were at 95% of demand and during the moratorium period, there were only 5% of customers who had not paid a single instalment. Some of these customers subsequently paid in September and October, it said.

The collection efficiency of Shriram City Union Finance improved to 95% in September, resulting in better asset quality and lower impairment by 35% quarter-on-quarter. With business revival and upcoming festivals, a larger proportion of small and medium enterprises, and gold AUM is expected to increase in the coming quarters, the company said.

YS Chakravarti, MD & CEO, Shriram City Union Finance, said during the Q2 results: “This has been a heartening quarter, with disbursement growth being seen across almost all our products. Our asset quality continues to get better with every quarter.”

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