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Recast loans at non-bank lenders may double by the end of this fiscal year. The restructuring of assets of non-bank lenders is likely to double up, to 3.3 percent by March 2022. The main reason for this trend is the impact of the second wave of the pandemic.

recast loans

The same ratio was previously at 1.6 percent as of March 2021, after the first wave of the pandemic. The pandemic helm the Reserve Bank of India (RBI) to make an exception by launching a loan recast facility. This scheme is envisaged for the borrowers impacted by Covid-19.

The Credit rating agency, ICRA said the restructured book for NBFCs is expected to be 4.1-4.3 percent as of March 2022 in contrast to 2.2 percent in March 2021. Meanwhile, the same rate of 2.0-2.2 percent is expected for housing finance companies against the earlier rate of 1.0 percent in March 2021.

recast loan

Why the Second wave could be a reason?

The second wave of coronavirus infections is responsible for imputing the budding recovery in non-bank collections. The predictions for the respective collections in Q3 FY2021 and Q4 FY2021 do not bring that sunlight anymore. The second wave is severely impacting the cash flow of the underlying borrowers. Therefore, further prolonging the recovery process.

The Vice-President of ICRA, A M Karthik, said the nature of the underlying security governs the higher incidence of recasts for NBFCs, against the Housing finance companies (HFCs) with home mortgages.

Vehicle, SME (small and medium enterprises) and personal loans are the bulk of the NBFC’s credit accounts. Such customers were facing asset quality-related pressures during the last fiscal. Entities with a sizeable share of new and heavy and medium commercial vehicles witnessed higher restructuring. While, the same was modest for other segments like cars, two-wheelers, and tractors.

According to Crisil, liquidity cover rating at NBFCs has improved from a year ago. This puts NBFCs in a better position to service debt in the near term, which will cushion the impact of the pandemic. This trend is changing from the respective scenario of last year when asset-quality and liquidity fears multiplied. This observation came after the announcements for a moratorium on repayments and stringent lockdowns. Now, once again the second wave is affecting the collections in the current fiscal, and the decline has been more pronounced in May. As the containment measures in most parts of the country only started in the latter part of April.

For more such updates, keep watching this space!

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