Loans – Coronavirus pandemic to keep compensation risks high for secured loans
Indemnification risks on securitized loans in India will remain high over the next 12 months, no matter how efficient the lineup increases after the moratorium ends, according to rating firm Moody’s.
Weak financial conditions will continue to affect the ability of debtors to repay loans, which will keep the efficiency risks for asset-backed securities (ABS) high.
The moratorium on funds ended in August 2020. Collections in Indian rated ABS improved markedly in September and October, although they remain below pre-coronavirus levels, said Dipanshu Rustagi, deputy vice president and analyst at Moody’s.
At the same time, the delinquency fees for ABS of rated auto loans and micro, small and medium enterprises (MSMEs) have also increased, with some debtors unable to renew or maintain repayments amid the deep financial contraction.
“Given the weak financial positions, the risks of asset efficiency will remain high in this atmosphere and we expect that auto loan ABS and MSME loan ABS defaults will continue to expand over the years. Next 6 to 12 months, ”added Rustagi.
New authorities help measure and present transaction options will mitigate the threat. In November, the Indian authorities introduced a Rs 2.7 trillion tax assistance program, which can benefit debtors in the MSME sector.
Indian ABS rated by Moody’s benefit from non-amortizing cash reserves and additional deployment, which provide liquidity and buffer against losses, he added.
Meanwhile, in another report, Moody’s said phasing out coronavirus aid measures would help prevent an increase in non-performing loans (NPLs) for banks in ASEAN and India. Each zone faces an uneven restoration forward.
The gradual reduction in aid measures will give debtors time to regulate and banks to build up debt buffers. This in turn will reduce the risk of a sharp drop in the quality of banks’ assets, said Rebaca Tan, assistant vice president and analyst at Moody’s.
Still, dangers remain amid a possible patchy recovery in 2021 that is still weak in the face of setbacks, as well as any new wave of coronavirus infections.
loan moratoriums were the most common among the programs launched at the start of the pandemic to help debtors. They will be quickly removed from most international sites. Rather than loan moratoriums, regulators encourage banks to restructure loans by allowing lenders to classify these loans as performing.
This strategy will save many banks the time they need to deal with deteriorating asset quality. The decline in asset quality is likely to observe the financial slowdown, which can drive up unemployment and weigh on corporate profits, he added.