Collection efficiency in unsecured asset classes under pressure: ICRA

ICRA reports decline in collection efficiency for unsecured asset classes like microfinance, personal loans, and SME loans in FY2025.

Credit rating agency ICRA Ltd said it has observed decline in collection efficiency for unsecured asset classes, such as microfinance, personal loans, and unsecured SME loans, amidst current economic headwinds.

It said the collections of the microfinance pools have dropped to 90% in Q3 FY2025 from previous highs of 97% at the beginning of the fiscal. 

The collections in the SME segment also weakened in FY2025, especially in the unsecured asset class, where the efficiency ranged between 85-92% for 9M FY2025, it said in a report.

The secured SME pools, however, continue to report robust asset quality with collection efficiency above 95%. 

“For personal loans, the collections have seen a slight downward trend in the past two quarters due to higher festive season spending by the customers and the relatively low priority of personal loans repayment, being unsecured in nature. The collection efficiency reduced to 88% in December 2024 from 92% seen in March 2024 in ICRA-rated pools,” the rating agency said. 

Abhishek Dafria, Senior Vice President and Group Head - Structured Finance Ratings at ICRA said: “Post the Covid-19 pandemic, the country witnessed a period of high economic growth and healthy performance in lenders’ loan books. This led to securitised pools also showing increased collections and low delinquencies.

“However, the current fiscal has seen headwinds across all asset classes, but primarily in the unsecured asset classes, which are facing more pressure in terms of asset quality,” he said.