India Ratings and Research (Ind-Ra) has said it witnessed a recovery in average current collection efficiency to 79 per cent in July from 67 per cent in May across 143 rated securitisation transactions.
However, 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.
Ind-Ra said resumption of economic activities post the second COVID wave improved sentiments and supported the loan performance in June and July.
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. Uncollateralised asset classes such as personal loans and unsecured business loans continue to underperform as before.
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.
As vaccination rates are improving in the country, business disruptions from any further COVID wave and the risk of its effects on performance of rated transactions are reducing gradually.
However, the agency is continuing to test transactions for elevated pandemic-related disruptions while reviewing and assigning ratings, while also adjusting for stressed collection efficiency assumptions to the reduced levels witnessed during the second wave in the originator's portfolio.
As expected, the current collections improved across asset classes in June and July compared to May. Given the low number of rated transactions in some of asset classes (such as tractor loans), the average collection efficiency may not indicate the market level collection efficiency.
Overall for the agency-rated transactions, average current collections efficiency had reduced by 16.2 percentage points in April and May but recovered by 11.6 percentage points in June and July, signifying that the recovery from the impact of second wave is not yet complete.
Ind-Ra said it expects intensive collection efforts and improvement in broader business activities in August along with the momentum in vaccination rate to continue to support the improvement in collections in August and September.
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