NBFCs' collection efficiency to remain strong even after rate hike: Icra

A day after the Reserve Bank delivered another rate hike, a domestic ratings agency on Thursday said the increases will not impact collection efficiencies for non-bank lenders.

This is so primarily because of the collaterals given by borrowers and the priority they accord to repayments, Icra Ratings said.

The RBI has hiked rates in five consecutive policy reviews since May 2022 in order to curb inflation, which has led to an overall jump in the interest rates in the system.

The agency said typically housing loans and loans against property pools carry interest rate risks.

"... the continuation of rate hikes will not have a significant bearing on the collection efficiencies given the association of the borrower with the underlying collateral (residential properties) and the priority given by borrowers to repay such loans," it said.

The agency added that the collection efficiency is expected to remain robust on the back of strong outlook for majority of the sectors though impact of the uncertain global environment is difficult to ascertain at present.

It said non-bank finance companies (NBFCs) and housing finance companies are reporting collection efficiencies of 97-105 per cent for the first nine months of the fiscal, as per an analysis of retail pools securitised by such lenders.

Securitisation is the bunching together of retail loans to form a pool which is passed on to another entity for upfront payments.

The healthy collections are on improved economic activity, a favourable operating environment and non-banks returning to normalcy after two years of interrupted operations during the pandemic, the agency said.

"Collection efficiencies have remained robust throughout FY2023 so far in spite of the global uncertainties, inflationary pressures and rising interest rates. The strong domestic growth has supported the cashflows of individuals and businesses as they emerge from the stress seen during the Covid period," its group head for structured finance ratings, Abhishek Dafria, said.

Pools originated post pandemic have reported a strong performance with healthy collections and low delinquency buildup, he said, adding tighter underwriting adopted by non-banks coupled with a curated pool selection criterion by investors has resulted in better quality of retail pools at origination.