NBFCs’ better collections in Sept indicate recovery in some segments

In a break from all the Covid gloom, top NBFCs have reported a positive trend in collections, post-moratorium. It is not a V-shaped recovery, but offers some optimism for the pressured segment. The improved collection suggests recovery in some business segments, especially MSMEs

While the Supreme Court has deferred the hearing on the waiver of interest charged on loans during moratorium until October 5, collections and business recovery in the NBFC customer segments have improved, post the moratorium period that ended on August 31.

Leading non-banking finance companies such as Sundaram Finance, Cholamandalam Investment and Shriram City Union Finance have reported improvement in collections during September on the back of recovery in some industries.

‘Pleasant surprise’

“It has been a pleasant surprise in collections post-moratorium,” says TT Srinivasaraghavan, Managing Director, Sundaram Finance. While segments such as hospitality and bus transportation have been badly affected, recoveries have been quite encouraging in several others, though varying from region to region. “We have all hues in this,” he adds.

Overall, collections in September are not significantly lower than in the same month of 2019.

Cholamandalam Investment & Finance Company Ltd also reported good collections in September. “Even during the moratorium period, some customers continued to pay,” says D Arulselvan, Executive Vice-President and CFO.

Though Cholamandalam’s moratorium percentage was higher at 74 per cent, 60-65 per cent of customers paid one or more instalments during the period. “Our overall collections were in the range of 60 per cent in the past two months. Now, we are reaching about 90 per cent of pre-Covid-19 levels. So, the apprehension about customers not paying EMIs during the moratorium is unfounded,” adds Arulselvan. Shriram City Union Finance had 65-67 per cent collections in August, which crossed 70 per cent in September. “By end of this month, we hope to touch 80 per cent levels,” says YS Chakravarti, Managing Director & CEO of Shriram City Union Finance.

Revival of MSMEs

The company’s major concern, he said, was about the revival of its MSME customers. About 55 per cent of its book constitutes loans mostly to micro and small units with an average ticket size of ₹12-13 lakh.

“Collections have been pretty good in the MSME segment. Most of our customers have reported improved business and cash flows. The increase in collections is mainly due to customers who opted for moratorium starting to repay,” he adds. Close to 80 per cent of Shriram City’s MSME customers are engaged in trading and services. “We don’t have much exposure to manufacturing and that could also be one of the reasons why collections have come back strongly,” adds Charavarti.