NBFCs stop lending for fear of rising defaults

Chennai: Hit by a drop in installments due to Covid-induced lockdowns across the country, non-bank lenders are slowing new disbursements and even stopping them for unsecured loans.
From an average default rate in collection efficiency of 2-3% in the pre-Covid era, non-bank finance companies (NBFCs) now see 6-8% of borrowers missing their payment schedules in the during the second wave of the pandemic. IIFL Finance halted new disbursements for unsecured microenterprise loans and personal loans. It also tightened control and disbursements for secured loans such as home loans, home loans, and gold loans. According to risk manager Sanjeev Srivastav, even for secured advances such as home loans, the company reduced the loan-to-value ratio to 50-40% from 70% earlier.
Cholamandalam Investment & Finance Vice President and CFO Arulselvan D said: “In the first quarter we want to be more careful. Disbursements will rebound once cases decrease. It is difficult to predict new exposure to loans, especially when our employees want to stay safe and protect their families. We hope there will not be a third wave of Covid. The efficiency of loan collection increased from 115% in March to 95% in April 2021. “The severity of the foreclosure was most visible in April when we saw the impact on collection efficiency. Thus, we made an additional provision of Rs 350 crore during the quarter ended in March 2021, given a probable impact of the second wave of Covid, ”said Arulselvan.
The head of another NBFC in the wholesale lending industry said: “Disbursements in the first quarter will likely be lower than in the fourth quarter. We are trying to do a further assessment of the impact on the borrower of Covid 2.0. It will be fair to say that some caution is required in our credit decisions.
Shriram City Union Finance Chief Executive Officer and CEO YS Chakravarti said that while it is too early to talk about the company’s performance in the first quarter of fiscal 22, April was a stable month in terms of disbursements and of recoveries. “Disbursements were comparable to our usual start to one of our first quarters. The local lockdowns in May, however, likely affected business. But given that there seems to have been some control over new infections at important business locations for us such as Tamil Nadu and Maharashtra, we hope June will be better, ”he said.