There has been a further improvement in the performance of securitisation transactions, with June 2020 collections being better than April and May across asset classes, according to India Ratings (Ind-Ra).
Across asset classes in Ind-Ra’s rated transactions, the average collection metric improved to 63 per cent in June 2020 from 29 per cent in May 2020, with a sharp improvement in microfinance and tractor loan pools.
The agency, in a report, assessed that the improvement in the transaction average collection metric (for 187 rated transactions across asset classes) over April-June 2020 points towards a possible further improvement in July collections.
As the economic unlock started in June, the repayment capacity of underlying borrowers improved, resulting in a greater number of borrowers paying their instalments partly or fully, it added.
As per the report, fewer transactions utilised external credit enhancements (CE) in June than in the previous months.
As the moratorium and the related flexibility in the transaction pay-outs are available for August and September investor pay-outs, the reversion of collections to close to pre-Covid levels by the end of moratorium will be closely watched for, by the market.
Prajeesh Jayaram, Associate Director, Ind-Ra, emphasised that the modalities and treatment of the restructuring scheme for loans in a securitised pool and investors’ consent or denial for amendments in transaction documents may affect the ratings due to a possible reduction in the cash flows available for investor pay-outs.
Ind-Ra, based on its Covid-19 rating sensitivity assumptions for asset-backed and residential mortgage-backed securitisation transactions, has placed 24 transactions on Rating Watch Negative owing to their failure to pass Covid-19 stress assumptions (14 transactions) and changes in counterparty rating (10 transactions).