On securitisation road, commercial vehicle pools gaining traction

Securitised pools show collections from commercial vehicle (CV) pools have improved, driven by an increase in freight demand and lower diesel prices, says a new Crisil study.

However, the performance of tractor and construction equipment (CE) asset classes remains weak, the study notes, adding that other segments like microfinance, housing mortgages, and commercial mortgage-backed securities (CMBS) continue their
strong performance.

Commercial vehicle loans are the largest asset class being securitised in India. CRISIL has ratings outstanding on 44 commercial vehicle pools securitised by 11 originators, aggregating Rs10,6oo crore in rated amount.

The median monthly collection ratio (MCR) for CV pools improved to a strong 99.8 per cent for the quarter ended March 2015, from 98.1 per cent in the same period of 2014, and a three-year low of 94.4 per cent in the quarter ended December 2012.

Says Pawan Agrawal, chief analytical officer, Crisil Ratings, ''The collection ratios in CV pools stood at the highest level for 2014-15 when compared to the previous four years. We
expect this improved performance to sustain over the near term.''

On the other hand, performance of tractor pools remains weak. The median MCR for tractor pools dropped to 93.1 per cent in the quarter ended December 2014, from 94.7 per cent in the same quarter of 2013, due to delayed monsoons leading to lower crop output in major farming states.

While collections improved in March 2015, Crisil believes this is on account of traditional, year-end focus on collections.

Unseasonal, pre-summer rains this year have already hit crops in some regions of the country, which could impact collection ratio in the coming quarters.

Adds Agrawal, ''All CRISIL-rated tractor pools, however, have adequate credit protection against this near-term asset quality pressure.''

In the construction equipment sector, poor infrastructure and construction activity continues to be a drag on the asset quality of financiers.

While there was limited deterioration in the performance of Crisil-rated pools because of high amortisation (more than 80 per cent), the portfolio performance of leading financiers (with a portfolio size of Rs23,000 crore) indicates on-going stress. Their average delinquency (90+ dpd) level has increased three-fold in the last two years.

Crisil believes any improvement in the quality of construction equipment sector will be linked to a pick-up in mining and construction activity, and increase in infrastructure investments.

CRISIL-rated commercial mortgage-backed securities transactions issued by two malls are performing along expected lines with interest coverage of 1.80 times during the nine months ended December 2014.

During this period, average rentals in both the malls have increased by around 4 per cent annually. Vacancy was in line with Crisil's expectations at 4-6 per cent for both malls.

Mortgage-backed securities  and microfinance loan pools have also continued to demonstrate robust performance. Their collection ratios have remained at over 99 per cent during 2014-15, which has led to negligible delinquencies and no instance of utilisation of cash collateral.

Average monthly prepayments rates in MBS pools have been higher at 1.3per cent for the three year period between 2012 and 2014, against 0.6 per cent for earlier vintages, owing to higher proportion of loans against propertyreceivables in the recent pools.

Bumpy road ahead for construction equipment and tractor sectors, says Crisil.