(The following statement was released by the rating agency)
Nov 08 - Fitch Ratings expects that recent floods in India’s Andhra Pradesh (AP) region will cause a temporary increase in delinquencies in portfolios backing Fitch-rated Indian structured finance (SF) transactions. This is due to potential disruption of loan collections in affected districts and also because borrowers’ ability to meet loan repayment may be affected.
Fitch believes that the Indian SF transactions it rates are generally resilient to the impact of the flooding due to sufficient credit enhancement (CE) that has been built up through amortisation. Of its 13 publicly rated Indian SF transactions, 11 are backed by used and new commercial-vehicle loans and can withstand stressed losses from the default of all loans in AP. The CE of these 11 transactions averaged 29% as of end-October 2012, and their average exposure to AP is estimated at 19%.
The remaining transactions are two small business loan transactions originated by Shriram City Union Finance Limited, which are likely to be more affected by the flooding due to high portfolio concentration (close to 78%) in AP. In Fitch’s stress-case scenario, both transactions can withstand losses from the default of 30% (Small Business Trust 2012) and 60% (Small Business Trust II 2012) of loans in AP. However, the agency notes that not all of AP is affected by the floods and the loans in these two transactions are mainly to small business enterprises not directly related to the agricultural sector.
Fitch will closely monitor the development of the floods, delinquency trends, and collection efforts by each originator in the affected areas.