The rating agency has not seen a material impact in the performance of the majority of its rated securitised transactions during September 2020 till March 2021, because of the reversion of collection efficiency close to pre-COVID-19 levels in certain sectors.
It has done a liquidity analysis of its rated pool, while considering three scenarios — an extreme case of zero collections for first quarter of 2021-22; 50 per cent in April-June 2021 period; and 50 per cent in the first half of 2021-22.
“Around 22 per cent of the total rated (securitised) transactions would experience stress in case of zero collections during April-June 2021.
“However, all the rated transactions will be able to sustain for the next three months in case of 50 per cent collections,” the agency said in a report.
In case the 50 per cent collection stress continues for the next six month, 14 per cent of the transactions would face liquidity issues, the report added.
Securitisation is the process of pooling and repackaging of homogenous illiquid financial assets into marketable securities that can be sold to investors.
The agency said it has witnessed a steady increase in collection efficiency post moratorium (September 2020 onwards), which was driven primarily due to a gradual reopening of the economy.
Given the stricter lockdown measures imposed from mid-April 2021, it believes that collection data will indicate the ground reality. Specifically, the agency expects that collections for May 2021 could be severely impacted.
However, non-bank financial companies being functional this year, despite the lockdown, would help them to better manage their collections.
The report said commercial vehicles have seen steady collections in the last two quarters of FY21, but the lockdown could moderate fleet capacity utilisation, impacting medium and large fleet operators. Lower freight rates could further affect borrowers’ cash flows.
Unsecured business loans are likely to be impacted, given borrowers’ depleted financial cushions due to the impact of the pandemic over the past one year. Businesses that are directly or indirectly associated with consumer discretionary sectors such as travel, restaurants and salons are likely to be hampered due to the lockdown.
With collections still not back to normal after the first wave impact, the agency said it would remain watchful of the challenges that come with the second wave.
The agency said average collections in March 2021 witnessed an initial sign of improvement in microfinance loan pools, although a significant number of borrowers are in the delinquent bucket.
“They are paying one EMI every month but are not able to become current without paying outstanding EMIs. Also, there has been a rise in medical spending due to the spread of infection in rural areas which has also depleted the financial cushion,” it said.
The agency further said that given the availability of moratorium during the first wave, only a few borrowers opted for restructuring 1.0.
However, it expects in the absence of the moratorium, a large portion of the loan pools to undergo restructuring this time.
With the current data, loan restructuring of loans will be more likely in unsecured business loans, micro finance loans and vehicle loans, the agency said.
It added that the gap in March and May 2021 collections shall indicate the portion of the pool that may opt for restructuring.