Mumbai, Nov 12 (PTI) Underlying borrowers in securitisation transactions are likely to focus on the revival of businesses and build-up of financial cushions over the next few months, according to a report.

The immediate policy response to COVID-19 has been to prioritise business stabilisation and support recovery of the economy after the lockdown, India Ratings and Research said in a report.

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In the report, the rating agency said its rated securitisation transactions have overcome the transient impact without much credit events. It is due to the withdrawal of lockdown in a gradual manner, the dispensation of moratorium and associated amendments in securitisation transactions and the availability of external CE (credit enhancement) in the transactions, it added.

The agency said it expects "the underlying borrowers in securitisation transactions to shift focus to the revival of businesses and build-up of financial cushions in the next few months, from a six-month-long push for survival of businesses, by ensuring timely liquidity".

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It said an originator or servicer plays an important role in the Indian securitisation transactions, given the lack of a strong back-up servicer market.

The outbreak and subsequent lockdowns have accelerated technology adoption and the market witnessed swift re-engineering of lending models to cope up with the situation.

As lenders continued operating with employees working from home, a range of new priorities and challenges have come up including business continuity risks, social distancing for frontline collections staff, workforce productivity and security risks, the report said.

It further said servicers are confronted with challenges in terms of reconciliation of the borrowers' cash flows with the investor pay-outs after the moratorium.

"Structural changes such as temporary alterations in the payment mechanism, trapping of excess interest spread during the moratorium and any excess cash flows adjusted as prepayments have resulted in complications in reporting loan pool data," the report said.

The agency said its rated structured finance transaction ratings predominantly remained stable between March 2020 and October 2020. However, there were exceptions of 25 securitisation transactions, three lease rental discounting transactions and one pooled loan issuance credit ratings that were placed on rating watch negative, it added.

"This was owing to expected COVID-19-related asset deterioration and/or changes in counter-party ratings," it said.

The rating agency said it will continue evaluating if the available credit enhancement (CE) is adequate for the rating level stresses, given that some of the transactions have started dipping into CE after the moratorium.

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