New Delhi: The fallout of the coronavirus pandemic is raising risks for Indian asset-backed securities, rating agency Moody's Investors Service said on Tuesday.
However, the agency said that recent structural changes and the credit enhancement build-up has partially offset the growing credit challenges.
"The high take-up of coronavirus-related payment moratoriums and the economic downturn triggered by the pandemic are disrupting the cash flow of ABS transactions and as a result, are raising liquidity risks," Dipanshu Rustagi, a Moody's Assistant Vice President and Analyst, said in a statement.
Accordingly, for Indian auto ABS that Moody's rates, and are mostly backed by commercial vehicles, 70-100 per cent of underlying loans are currently on payment moratoriums, as are 55-65 per cent of loans in Indian micro, small and midsize enterprise (MSME) loan ABS.
"Meanwhile, the economic downturn is increasing risks for borrowers and consequently likely to trigger a deterioration in asset quality at least through the remainder of the year," Rustagi said.
Specifically, slowing growth is dampening demand for freight transport for commercial vehicle operators, while also weighing on the earnings and profitability of most MSMEs.
As per the statement, a further risk lies in the financial deterioration evident at many Indian financial institutions that sponsor ABS deals, since the credit quality of Indian ABS is dependent on sponsors' ongoing servicing of securitised portfolios.
"At the same time, most rated Indian ABS have amended the payment structures between April and June, partially offsetting the rising liquidity risks," the statement said.
"In addition, Indian ABS benefit from credit enhancement build-up, which provides protection against loan losses."