Collection efficiencies and delinquencies remain healthy throughout H2 FY2024.
ICRA-rated securitised pools have shown healthy performance, with collection efficiencies ranging from 92% to 107% across all asset classes in FY2024 so far, aided by a favourable operating environment, rigorous collection efforts, and adoption of digitised processes. Housing Loans (HL) and Loans Against Property (LAP) pools have showcased steady collections in FY2024 so far. This can be attributed to the critical nature of the underlying collateral for the borrowers and advances in online collection methods.
The vehicle pools are expected to continue their stable performance in the medium term, given the strong domestic economic cycle; financiers would also ramp up the collection efforts in Q4 of the fiscal. However, the impact of the current fluctuations in global fuel prices would be a key monitorable. Microfinance institutions embraced technology-driven collections, post the Covid-19 pandemic, showing positive signs and healthy performance. Secured Small and Medium Enterprise (SME) pools have outperformed unsecured SME pools in terms of collection efficiency and asset quality. Furthermore, the delinquencies in the securitised personal loans pools have remained range-bound, with 90+dpd between 1.6% and 3.4%.
Abhishek Dafria, Senior Vice President and Group Head – Structured Finance Ratings at ICRA said, “The limited fluctuations in collections over the past two years demonstrate the strength of the securitised pools, which consist of cherry-picked borrowers with better repayment track records and lower propensity to default. ICRA anticipates the collections to remain robust over the near to medium term on the back of a steady economic outlook. Moreover, the credit enhancements in the transactions should be enough to meet the investor pay-outs and absorb unexpected shocks of lower collections, barring any drastic unforeseen events.”
In MBS transactions, the rate hikes undertaken during the last two years did not have a significant bearing on the collection efficiencies as most lenders passed on the hikes in the form of elongated tenures rather than increased EMIs. For vehicle loan pools, there has been a marginal decrease in the collection efficiency in the first two months of Q2 FY2024 and Q3 FY2024, a trend usually seen every year as lenders increase collection efforts towards the end of the quarters, and especially in the last quarter of the financial year.
The collections of the microfinance (MFI) pools have remained steady. Although the delinquencies increased slightly during Q3 FY2024, ICRA expects them to stabilise in Q4 FY2024 and in the subsequent quarters owing to greater collection efforts.
The overall MFI industry has witnessed higher delinquencies in Punjab due to the ongoing farmers’ agitation. However, the live ICRA-rated pools have a low share in Punjab, and moreover there has been healthy collection efficiencies in this state. In the recent transactions, ICRA has observed that the investors have been proactively filtering out Punjab from the shortlisted pools. Hence, the impact of the agitation on MFI securitisation is expected to be minimal going forward. Overall, SME pools’ 90+dpd increased from 1.5% in June 2023 to 2.6% in Jan 2024.
The major contributors towards this rising delinquency are the unsecured SME pools. The secured SME pools continue to report robust asset quality. For personal loans, the collections have seen a slight downward trend in the past two quarters due to higher festive season spending by the customers and the relatively low priority of personal loans repayment, being unsecured in nature. The collection efficiency reduced from 95% in June 2023 to 93% in December 2023.
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