‘SMEs’ asset-backed securities to be impacted’

COVID-19-induced economic and property market disruptions would cause loan delinquencies in micro, small and medium enterprises (SMEs). This will impact the firms’ asset-backed securities (ABS) over the rest of the year, hurting refinancing prospects and leading to lower recovery rates said Moody’s Investors Service.

“We forecast India’s economy to contract 11.5% in the fiscal year ending March 2021,” said Dipanshu Rustagi, assistant VP, Moody’s. “And as the economy slows, SME loan delinquencies — which have been on the rise since January — will continue to increase and property prices face increasing pressure.

Refinancing to be hurt

“This will challenge SMEs’ refinancing of loans against property (LAP) and hurt the recovery prospects for defaulted loans, affecting the quality of ABS that we rate,” Mr. Rustagi added.

The Centre’s stimulus measures and the structural features of these deals will partially offset rising risks, Moody’s said. For example, as part of the relief measures, the government has guaranteed new and outstanding SME loans, which will help alleviate liquidity pressures in the sector, added Moody’s.