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NBFCs stop lending on fear of rising defaults

(This story originally appeared in on May 24, 2021)

Hit with a drop in instalment collections due to the Covid-induced lockdowns across the country, non-bank lenders are slowing fresh disbursements and even halting them for unsecured loans.

From an average default rate in collection efficiency at 2-3 per cent in pre-Covid times, non-banking finance companies (NBFCs) are now seeing 6-8 per cent of borrowers missing their payment schedules during the second wave of the pandemic.

has halted fresh disbursements for unsecured loans for micro-businesses & personal loans. It has also tightened scrutiny and disbursements for secured loans like loan against property, housing loan and gold loan. According to chief risk officer Sanjeev Srivastav, even in secured advances like loans against property, the company has reduced the loan-to-value ratio to 50-40 per cent from 70 per cent earlier.

Cholamandalam Investment & Finance executive VP & CFO Arulselvan D said, “In Q1, we want to be more cautious. Disbursements will bounce back once the cases decline. It is difficult to predict fresh lending exposure, especially when our employees want to stay safe and protect their families. We hope there is no third Covid wave.” The collection efficiency of loans has reduced from 115 per cent in March to 95 per cent in April 2021. “The severity of lockdown was more visible in April when we saw the impact on collection efficiency. Thus, we have made an additional provision of Rs 350 crore in the March-ended quarter, 2021, considering a probable impact of the second Covid wave,” Arulselvan said.

The head of another NBFC in the wholesale lending business said, “Disbursement in Q1 is likely to be lower than that in Q4. We are trying to do an additional assessment of the impact on the borrower of Covid 2.0. It shall be fair to say that some caution has come in as part of our credit decision making.”


MD & CEO Y S Chakravarti said that, while it is too early to talk about the company’s performance in Q1FY22, April was a steady month in terms of both disbursements and collections. “Disbursements were comparable to our usual start to any of our first quarters. The localised lockdowns in May are, however, likely to have affected business. But considering that there seems to have been some control exercised over fresh infections in important business locations for us such as Tamil Nadu and Maharashtra, we are hopeful that June will look better,” he said.

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