With curbs easing, securitisation pool collections spring back
Gradual elimination of social limitations has boosted the monthly collection ratios of CRISIL-rated securitized pools, which had dropped between April and June 2021 in the aftermath of the second wave of the Covid-19 pandemic.
The trend toward increased collection efficiency has been observed across asset classes, and in a number of areas, collection efficiencies are approaching pre-pandemic levels.
Collection ratios in mortgage-backed securitisation (MBS) pools have reverted to near-100% of their pre-pandemic levels in the pay-out months of July and August 2021 (data is a month behind, so July and August payout figures correspond to June and July collections, respectively). MBS pools comprised of mortgage- or property-backed loans have demonstrated exceptional durability across economic cycles.
According to Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer at CRISIL Ratings, "collection ratios in asset-backed securitisation (ABS) pools are expected to reach January-March 2021 pay-out levels, up from 84% in Q1 this fiscal." The median collection percentages for August pay-outs for automobile loan pools exceeded 100%, falling just short of the March collection ratio of 101%.”
Similarly, collection ratios for two-wheeler and small and medium-sized enterprise (SME) loan pools fell to 95% and 78%, respectively, for June pay-out, but increased to 98 percent and 90%, respectively, for August pay-out. The government's emphasis on rural areas and agriculture, as well as the establishment of SME programmes, have aided in this effort.
Monthly collection ratios have evolved into a barometer of underlying economic activity in the aftermath of the epidemic, and are actively monitored by banks, originating non-bank financial firms (NBFCs), investors in securitised pools, and intermediaries like as deal arrangers.
According to Rohit Inamdar, Senior Director at CRISIL Ratings, "To be sure, securitisation volume following the second wave is still a shadow of what it was before to the pandemic." What is reassuring is the relatively little fall in collecting following the second wave. Continued recovery should boost investor confidence and interest in securitisation transactions.”
Following the August payment, there is appropriate credit cover in CRISIL-rated transactions. CRISIL Ratings has noted the pandemic's impact on collection efficiency for its rated securitisation transactions in a press release.
Compared to the first wave of pandemic, which saw extremely strict lockdowns, the second wave's economic impact was far smaller due to more localised and less tight lockdowns. This is also reflected in two ways: first, a slower decline in collection efficiency in securitised pools; and second, a lack of traction for any form of restructuring among retail loan borrowers following the second wave, in contrast to a large number seeking relief under the moratorium / restructuring scheme announced following the first wave.
CRISIL Ratings will continue to monitor the collection ratios, historical patterns, and underlying asset quality of securitised pools under surveillance and will take necessary rating action if any incident adversely affects the near-term recovery of collections or if delinquencies exceed expectations.