Poor growth, high oil rates to up SF delinquency levels: Fitch

MUMBAI: The ongoing economic slowdown and increasing fuel prices are likely to keep delinquency rates in the Structured Finance transactions at higher level for the next 12-18 months, Fitch Ratings said today.

SF services generally involve highly complex financial transactions for companies with unique financing needs not usually fulfilled through loans.

The products in this category include collateralised bond obligations (CBOs), collateralised debt obligations (CDOs), syndicated loans and asset-backed securities.

"Delinquency rates in the country's structured finance transactions will continue rising in the next 12-18 months due to fall in the economic growth rate and rising fuel prices weakening debt-servicing ability," Fitch said.

Lenders' effective collection strategies, with regular and frequent borrower contact and strong local knowledge relating to a borrower's circumstances, have helped keep delinquency rates in Indian SF transactions low, it said.

"But a rising trend is evident in Fitch-rated transactions, reflecting the slowdown in the economy in the last two to three years," the report added.

For transactions closed in the financial year to March 2013, the average 90-plus days delinquency rate was 2 per cent within seven months of closing, as against 1.7 per cent for FY'12 transactions, Fitch said.

Transactions closed in FY'12 have been more resilient due to higher seasoning, but the trend to higher delinquencies is also evident, it added.

"In September 2013, 90-plus days delinquencies for these transactions had almost doubled, rising to 2.5 per cent from 1.3 per cent a year earlier," Fitch said.

The report said the loss-absorption mechanisms and credit enhancement build-up in the country's structured finance transactions will continue to support the stable rating performance and outlook of the asset class.

Fitch said good monsoons this year will also help keep a lid on delinquency rates, as 48 per cent of the Fitch-rated portfolio consists of light or small commercial vehicle loans related mainly to agriculture or the transport of essential goods and services.