Retail loan repayments in securitised pools unaffected by inflation, interest rate hikes

Interest rate hikes and inflation have not impacted repayment by borrowers whose loans have been securitised, a rating agency said on Thursday.

The monthly collection ratios (MCR) of securitised pools rated by Crisil Ratings have remained "largely unaffected" by the macroeconomic challenges, the agency said.

It specified that retail borrowers in the pools have been demonstrating a strong repayment record, courtesy an uptick in economic activity.

Lenders usually resort to aggregating a set of assets and pass the future receivables to other financiers against an upfront payment in a process called as securitisation.

The RBI has hiked interest rates by 140 basis points this year responding to retail inflation which has consistently breached the upper end of the tolerance band set for it.

Crisil's deputy chief ratings officer Krishnan Sitaraman attributed the resilience in the pools to cherry-picking of superior quality retail loans for securitisation and economic activity. Mortgage-backed securitisation (MBS) pools displayed median MCRs of 100 per cent during the pay-out months of April-July 2022, reflecting the inherent strength and reliability of property-backed loans as a retail asset class, it said.

Collections of commercial vehicle (CV) loan pools saw a slight sequential dip from the peak of 105 per cent during the April pay-outs, but remained robust at 98 per cent due to better freight realisations despite higher fuel costs, it said.

It explained that factors like moderation in tax and duties on crude derivatives lightened the burden of the higher cost of energy in the international market on end consumers.

Seasonal demand for CVs has increased capacity utilisation, resulting in higher-than-average realisations for vehicle owners, it added.

Collections of two-wheeler loans remained stable, with MCRs at 98-99 per cent over the past few months, while collection efficiency of small and medium enterprise (SME) loans dipped marginally to 95 per cent in July from 97 per cent in April. Improved economic activity visible in the 13.5 per cent GDP real growth in Q1 has helped, it said, adding that subsidy and transfer payments supplemented agricultural and rural income, while sovereign-guaranteed, lower-than-market cost funds remained available to SME entities through government sponsored schemes.

"The trajectory of further movement in interest rates and inflation will be a key monitorable in the ability of borrowers to continue their solid repayment trends and hence of securitised pool collections," its senior director Rohit Inamdar said.