Last year’s heatwaves impacted collection sharply, with efficiency declining 50-200 basis points in the June quarter. One basis point is a hundredth of a percentage point.
“Collections fell by about two percentage points last summer, and we expect a similar dip this year,” said the head of a non-bank lender, who did not wish to be identified. “Field visits will reduce, and some customers may seek deferments as business activity slows. Collection should normalise once temperatures ease.”
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The IMD has forecast above-normal heatwave days between April and June in several parts of the country. Additionally, an El Nino pattern, typically associated with weaker monsoons, is expected to emerge by July.
“Climate risk is now embedded in our assessment framework, with a clear focus on avoiding excessive leverage,” said Prashanth TS, head of Mid Corporate Group at Axis Bank. “The impact is uneven-some businesses adapt while others face disruption. At a portfolio level, these effects tend to balance out, but the key is to recognise divergence, price risk appropriately and maintain strong risk metrics.”
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Data from automated teller machine (ATM) operator CMS showed monthly average ATM cash dispensation fell to ?1.12 crore in June 2025, reflecting the impact of erratic weather on mobility and consumption. Vehicle financiers also reported a deterioration in asset quality in the first nine months of 2025-26, partly due to extreme weather events such as heatwaves, floods and prolonged monsoon, which affected utilisation levels.
Certain loan segments, such as microfinance, gold loans and self-employed borrowers, continue to rely heavily on cash-based collections.
Besides, a portion of equated monthly instalment bounce resolutions still requires on-ground visits and cash recovery. Heatwaves disrupt such field operations, weighing on overall collection efficiency for lenders.
To mitigate these risks, lenders are increasingly relying on digital tools for collection and customer acquisition, reducing dependence on physical interactions. Many are also tightening underwriting norms in sectors seen as vulnerable to heat-related disruptions.
“Climate volatility is becoming a structural risk,” the head of micro, small and medium enterprises at a large private lender said on condition of anonymity. “We are sharpening underwriting and collection strategies, using data analytics to spot early stress signals and recalibrate quickly, as different borrower segments will be impacted unevenly.”