Monthly collection ratios (MCRs) of securitised pools rated by Crisil Ratings have remained stable through the third wave. This was because the localized administrative restrictions, introduced in December 2021 and January 2022 to mitigate the effect of the omicron variant of Covid-19, had limited impact on the economic activity. As borrowers' workflows continued unhindered to a large extent, their cash flows stayed largely intact and supported timely loan repayment in securitised pools, resulting in no significant impact on pool collections. It is also evident in the low level of restructuring opted for by borrowers in these pools.

Says Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings, "The restrictions imposed to combat the pandemic’s spread in the third wave have been comparatively less intense than those in earlier waves. Additionally, many efforts have been made by several financing entities to digitalise their collection processes. Both these factors have quarantined securitised pool collections from any material impact arising out of pandemic related disruptions during the third wave."

Crisil Ratings had issued a press release¹ narrating the efforts taken by various non-banking financial companies (NBFCs²) on ring-fencing collections from any business, economic or regulatory disruptions. Efforts such as re-jigging of operations, retraining of staff and re-orientation of expenditures towards tech-enabling are being undertaken demonstrating management focus to operationalise these changes. This, even as 'feet-on-the-street' continues to remain the mainstay of business originations for most financing entities.

All the asset classes have displayed remarkable stability in collection performance.

• Mortgage-backed securitisation (MBS) pools witnessed a high ~100% collection (refer to chart in Annexure) in Feb 2022 payouts, reaffirming long-held belief that home loans are among the most resilient retail asset class.
• Two-wheeler loans and small and medium enterprise (SME) loans saw collection ratios of ~100% and 96% respectively in Feb 2022 payouts. This was much higher than average MCR of 66% and 60% respectively during the first wave and 97% and 93% respectively during the second wave.
  
• Commercial vehicle (CV) loan pools, meanwhile, saw a marginal fall in MCRs to 99% in Feb 2022 payouts from 102% in Jan 2022 payouts – quarter-end collections being usually higher than preceding two months. However, even at 99%, MCRs were significantly higher than average MCRs of 51% during the first wave and 95% during second wave of the pandemic.

Crisil-rated securitisation transactions have shown tremendous resilience during the last two years that have been impacted by various waves of the pandemic. Despite bouts of tremendous stress on underlying borrowers in pools, there were very few downward rating actions. During the times when collection ratios were dented severely, credit enhancements (provided initially) came to the fore to iron out the collection shortfalls. These were subsequently replenished as a large majority of the rated transactions have witnessed smart recoveries and returned to performance on expected trajectory.

Says Rohit Inamdar, Senior Director, Crisil Ratings, "Considering the loans in pools underlying securitisation transactions are cherry-picked, their performance vis-à-vis the overall portfolio is usually, comparatively better. Their solid performance in past two years is an indicator to investors that securitisation remains a reliable, time-tested route to gain exposure to quality loan assets. In this regard, their outperformance is a testament to the resilience of securitisation as a process."

¹ https://www.crisil.com/en/home/newsroom/press-releases/2020/12/nbfcs-break-a-sweat-securitised-pool-collections-improve-toalmost-pre-pandemic-levels-after-moratorium.html
² NBFCs includes housing finance companies (HFCs) and micro-finance institutions (MFIs)