NBFCS Vehicle Loan and MFI Collection Hit Most by Covid 2.0

Vehicle financing and microfinance segments of non-banking finance companies (NBFCS) have been the hardest hit as localised lockdown and rising infection among employees during the second wave of Covid-19 took a toll on their loan collections, India Ratings and Research (Ind-Ra) has said.

The credit rating agency estimates that NBFCS collection efficiency for vehicles deployed in goods and passenger movement could have declined by 45-55% over April due to a steep fall in the second half of the month, raising the risk of a steep spike in their non-performing assets (NPAS).

In the first fortnight of May, the collection efficiency for vehicles had fallen by 6-7% over April, which was down by 6-7% from March levels, Ind-Ra said in a new report. Beside the problems due to the pandemic, commercial vehicle owners have also had to deal with declining load factors and freight rates, which along with rising diesel prices, have impacted their cash flows, it said.

“Capacity utilisation has dropped significantly to 40-60% which makes debt servicing a challenge,” Ind-Ra said.

“A similar impact has been seen by vehicles that are involved in tourist services, school bus operation, and local conveyance where a large portion of this book may already be restructured or may have slipped into NPAS.

As Covid-19 infection rose in the rural areas, microfinance collections have also been hit as collection efficiency in May fell 10-15% weakening steadily after lagging 5% in April compared to March.

“Overall, with the lifting of the restrictions in some states since June first and second week, the sector on a consolidated basis could witness a collection short fall of 15-20% compared to March 2021,” Ind-Ra said. S-ET

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