Covid 2.0 may bring a recast surge at NBFCs

With non-bank financial companies rushing to mitigate the impact of the second Covid wave on their balance sheets, estimates suggest that about a tenth of their loan books could be recast — nearly three times that during the first wave.

Chief executives that ET spoke with said that profitability, too, could take a beating in the June quarter despite collection efficiencies improving in the past month.

“The recast levels in the second wave will be at least 2-3 times of what we had seen last year because there is no benefit of a blanket moratorium this time; so we need to salvage whatever we can,” said the CEO of a large non-bank lender. “We expect a significant drop in profits for this (June) quarter.”

The chief of another lender said that the impact of high recast will be seen across the June and September quarters.

“Several NBFCs are invoking recast in the June quarter and implementation will be in subsequent months due to which you will see a relatively high share of recast in the closing quarter. We have seen a dramatic increase in customers who have missed payments and those businesses will need hand-holding,” said the CEO, requesting anonymity.

In its latest monetary policy announcement, RBI announced version 2.0 of the resolution framework for borrowers with exposure of less than ₹25 crore that haven’t availed of restructuring under the earlier framework (March-August 2020) and were classified as standard loans at the end of March 31. This restructuring window will be open until September 2021.

“Unlike last year, the RBI has extended only limited support toward the restructuring of loans which may result in a sharp surge in the overall restructured portfolio for most NBFCs, including vehicle financiers,” said Jignesh Shial, Research Analyst, . “We remain concerned about the steep rise in Stage 2 assets, considering the addition of newly restructured loans to the book from the earlier moratorium period.”Most non-bank lenders have slowed fresh disbursements and improvement in collections continues to remain their top priority.

Collection efficiencies, which dropped as high as 20% in April and May, showed signs of normalcy in June with the regularisation of economic activities.

Also, bounce rates tracked by NPCI’s e-NACH platform rose by more than 250 basis points (in value) in May over April.

While collections for unsecured business loans and consumer durable products hit some hard ground again, the credit cards segment showed better results. The vehicle finance segment remained the most vulnerable, with private cars and two-wheelers seeing normalisation in recoveries and commercial vehicle and passenger vehicle loans remaining under stress.

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