India Ratings, in its note on the impact of the second wave of COVID-19 on vehicle financiers, is seeing a significant hit on the asset quality.

According to the report, borrowers are grappling with reduced capacity utilization, increased operating cost due to rising fuel cost, and reduced ability to service debt. India Ratings says that this could lead to a rise in loss given default for collaterals.

Prakash Agarwal, Director and Head-Financial Institutions at India Ratings & Research said that most of the vehicle financiers would be looking at a collection efficiency of about 80 percent.

“May, the first fortnight, the data was that we are already short of about 20 percent collection efficiency. So, if you look at the current number, we are in the vicinity of 80 percent give or take a few 100 basis points,” he told CNBC-TV18.

Agarwal also believes that the demand recovery in the second wave of the pandemic will not be similar to the first wave.

“Last year, if you look at the COVID impact, it was mostly limited to urban geographies. It was not so much in the rural areas. Last year it was more fear of COVID rather than the COVID impacting themselves. This year the COVID impact is far deeper and it is deeper in terms of geographies. So the demand recovery could be slightly slower,” he said.

(Edited by : Aditi Gautam)