Microfinance, unsecured SME loan pools will be the most stressed if lockdowns become more severe: ICRA

The year-on-year gross bank credit deployment to MSEs in January remained above 6%. (Representative image)

Credit and financing for MSMEs: Microfinance and unsecured SME loan pools are likely to be the most stressed among retail lending if there is an increase in the severity of lockdowns in various cities, according to rating agency ICRA. As Covid cases continue to explode in April, even as state governments have imposed restrictions to stop the jump, concerns have been raised about the quality of the retail lending assets of non-bank financial companies. “Movement restrictions would impact collection efforts for NBFCs, especially for microfinance loans where cash collections remain dominant,” the agency said in its latest report.

“The restrictions at present are localized and less severe, but their severity is gradually increasing as the surge in Covid cases is not yet under control. In the securitization transactions rated by ICRA, we have seen pools of unsecured microfinance and SME loans reporting the largest defaults last year after the end of the moratorium period, ”said Abhishek Dafria, Vice-President and Head of Structured Financial Ratings at ICRA. Auto loan pools and home loans / loans against real estate pools followed lending to SMEs in terms of defaults.

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Domestic securitization volumes had declined to a quarterly record high of around Rs 7,500 crore in the first quarter of fiscal 2021 due to the national foreclosure, although there was healthy sequential growth in subsequent quarters with a volume of around Rs 40,000 crore in the fourth quarter of fiscal 2021. “Following the second wave of the pandemic, ICRA expects securitization volumes to be impacted again in the first quarter 2022, as NBFCs and HFCs will be more selective in new loans, reducing their funding needs as investors for securitized pools may once again show a ‘wait and watch’ approach. “

“Securitization of microfinance and loans to SMEs, which had experienced a decline of about 70% year-on-year in fiscal year 2021, would pay the price. Nevertheless, if the rise in Covid business is soon brought under control with a limited impact on economic activities, we expect that the overall securitization volumes will experience an increase of 40 to 50% year-on-year during fiscal year 2022 with a high proportion securitization during the second half of the year. taxation, ”Dafria added.

Meanwhile, the deployment of one-year gross bank credit to micro and small enterprises (MSEs) in January remained above 6% at Rs 11.48 lakh crore against Rs 10.79 lakh crore in January 2020, according to the bulletin. of March 2021 from the Reserve Bank of India. However, January’s year-on-year growth contracted slightly by 0.2% from 6.6% year-on-year growth in December. The rollout in December 2020 was Rs 11.31 lakh crore against Rs 10.61 lakh crore during the period of the previous year.

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