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Collection recovery in securitised transactions yet to catch up with March 2021 levels: Ind-Ra

Collection recovery in securitised transactions yet to catch up with March 2021 levels: Ind-Ra

As vaccination rates are improving in the country, business disruptions from any further covid wave and the risk of its effects on the performance of rated transactions are reducing gradually, Ind-Ra said

Resumption of economic activities post the second COVID-19 wave improved sentiments and supported the loan performance in June-July 2021, Ind-Ra said Resumption of economic activities post the second COVID-19 wave improved sentiments and supported the loan performance in June-July 2021, Ind-Ra said

India Ratings and Research (Ind-Ra) on Wednesday said although it witnessed a recovery in average current collection efficiency to 79% in July 2021 from 67% in May 2021 across 143 Ind-Ra securitisation transactions, they are yet to catch up with the levels witnessed in March 2021.

Resumption of economic activities post the second COVID-19 wave improved sentiments and supported the loan performance in June-July 2021, it said.

Overdue loans in softer delinquency buckets started performing with the gradual lifting of pandemic-related restrictions and this trend was prominent in secured asset classes, the agency added.

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Uncollateralised asset classes such as personal loans and unsecured business loans continue to underperform as before, stated the agency, adding that "of the 12 Ind-Ra rated transactions that are on Rating Watch Negative, 10 are from the pools pertaining to unsecured asset classes and two transactions are impacted by counterparty-related risks." 

Ind-Ra rated unsecured business loan transactions have seen utilisation of external credit enhancements in the last 12 months, however as collections are improving post the second wave, the speed of utilisation has moderated, it said. 

As vaccination rates are improving in the country, business disruptions from any further covid wave and the risk of its effects on the performance of rated transactions are reducing gradually.  

However, the agency said it is continuing to "test transactions for elevated pandemic-related disruptions while reviewing and assigning ratings, and also adjusting for stressed collection efficiency assumptions to the reduced levels witnessed during the second wave in the originator's collection recovery in securitisation transactions yet to catch up with March 2021 levels portfolio." 

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Improvement in June-July 2021 collections 

As expected, the current collections improved across asset classes in June-July 2021 compared to May 2021, Ind-Ra noted.  

"Given the low number of rated transactions in some of the asset classes (such as tractor loans), the average collection efficiency may not indicate the market level collection efficiency. The recovery in collections of weak profile borrowers in unsecured loans remains low, possibly as the broader economic and business activities are yet to achieve normalcy," it said. 

Overall, for the agency rated transactions, the average current collections efficiency had reduced by 16.2 percentage points in April-May 2021 but recovered by 11.6 percentage points in June-July 2021, signifying that the recovery from the impact of the second wave is not yet complete. 

Ind-Ra stated that it expects intensive collection efforts and improvement in broader business activities in August 2021 along with the momentum in vaccination rate to continue to support the improvement in collections in August and September.