Russian-Ukrainian conflict likely to affect securitization pool performance: report

The ongoing war between Russia and Ukraine is likely to affect the performance of the securitization pool with a lag, and the impact will vary across asset classes, according to a report.

Stress, if any, in securitized transactions is expected to result in lower recoveries and higher delinquencies in the first quarter of fiscal 2022-23, India Ratings and Research said in a report.

“The ongoing conflict between Russia and Ukraine could affect the performance of the securitization pool with a lag, and the impact will vary by asset class,” the agency said in its report.

With rising fuel prices impacting retail pumps in March 2022, the agency estimates the impact on the economy and households will begin to be felt in the first half of the fiscal year. 23, and the impact could worsen if such a geopolitical situation continues for some time. long duration, or if the intensity worsens.

The resulting rating actions, if any, would be transaction-specific, depending on the availability of internal and external credit enhancements and counterparty risks, he said.

For auto loans, the agency has a neutral outlook for fiscal 2023. It expects the cost of ownership to rise due to rising fuel prices and input costs, affecting demand in the entire automotive industry.

The rating agency said rising freight prices proved to be the cushion that helped the commercial vehicle industry protect its margins to some extent in FY22.

Additionally, vehicular traffic has improved post-pandemic, which has increased capacity utilization levels.

“However, a sustained increase in fuel prices, beginning in the second half of March 2022, could adversely affect corporate margins, thereby slightly increasing pool defaults in securitization payments during the first quarter of fiscal year 23,” the report said.

India Ratings maintained a neutral outlook for FY23 tractor loans. Russia and Ukraine are major producers and exporters of agricultural products and suppliers of fertilizers to the world.

Supply chain and production disruptions can drive up commodity and production prices for Indian tractor borrowers, the agency said, adding that direct and indirect government-led subsidies could help. to counter these risks.

The agency believes that the high and sustained inflation and the uncertain business environment are the main risks that can affect the microfinance sector.

A rise in generalized inflation would be detrimental to the financial situation of borrowers in the case of micro-enterprises without pricing power. In addition, regular borrowers, faced with a possible increase in interest rates, could find themselves more indebted in future lending cycles, he said.

Regarding gold loans, the report indicates that with the label of a safe asset, gold prices saw upward revisions at the start of the crisis, before stabilizing at historically high levels. He believes such valuations can lead to additional top-ups and the creation of a new portfolio of gold loans, as seen in FY21.

This could expose the industry to the risk of a higher loan-to-value ratio if prices fall, and renewals of existing loans could occur at higher interest rates, according to the report.

(With PTI entries)

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Posted: Friday 01 April 2022, 17:39 IST

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