India Ratings and Research (Ind-Ra) witnessed a reduction in the average current collection efficiency to 69.2% in May 2021 from 82.8% in March 2021 across 154 rated securitisation transactions. Improving economic sentiments, along with fiscal and credit stimuli are expected to support loan performance in the medium term, Ind-Ra has said,
"As businesses and consumer confidence continue to revitalise and stabilise, credit-fueled consumption demand is expected to recover closer to 2HFY22. Uncollateralised asset classes such as microfinance and unsecured personal/business loans continue to underperform as evident from the collection shortfall and delinquency build up in these segments. Increase in household leverage, amid decreasing real income and increasing household expenses, is expected to build up stress in the retail portfolio of lenders. Therefore, the regulator's proposal for microfinance lenders to focus on the household's total repayment capability across all indebtedness is a step in the right direction," the ratings agency has noted.
While the agency expects significant delinquent loans in softer buckets to start performing with the gradual lifting of restrictions, delinquency build up in deeper buckets are likely to stay weak due to pandemic setback among households and small businesses. As on date, 24 Ind-Ra rated securitisation transactions are on Rating Watch Negative due to deteriorating collection performance and counterparty risks.
Also, the agency has been closely assessing maturity risks in transactions with timely-interest-ultimate-principal payment structure that have low residual tenors and in transactions that are significantly utilising external credit enhancements. The possibility of any further wave of COVID-19 infections and its effects on the performance of these transactions remains a key risk in the near term, as it could take a couple of months before the vaccination drive attains momentum across the country.