Strong asset performance to drive stable Indian structured finance ratings in 2010

Fitch Ratings today said in its outlook report that the performance of Indian structured finance (SF) transactions rated by it is expected to remain stable in 2010, given the recovery in the Indian economy and structural features that enable rapid deleveraging.

The agency's report on the sector provides an overview of Fitch-rated Indian structured finance transactions, with respect to their performance in 2009 and the outlook for the sector in 2010.

The report addresses the three major asset classes in the domestic structured finance market, namely asset backed securities (ABS), residential mortgage backed securities (RMBS) and single loan sell downs (SLSDs).

"An uptick in industrial activity and a robust pipeline of infrastructure projects in 2010 is expected to result in stable asset performance for both commercial vehicle and construction equipment loans. However, inflation and aggressive originations in a few asset classes may weaken asset performance," says Samiran Talukder, an associate director in Fitch's Structured Finance team.

The report notes that Indian RMBS transactions are expected to perform well overall in 2010, with low instalment-to-income ratios likely to cover payment shocks on the back of a potential rise in home loan interest rates of between 150bps-200bps. A decline in residential property prices is likely to be limited from current levels, and thereby have minimal impact on future asset performance.

In 2009, all Fitch-rated ABS and RMBS transactions in the Indian market backed by retail loans were affirmed at their initial ratings with Stable Outlooks, except for one tranche of an auto loan transaction which remains on Negative Outlook.

However, as anticipated in the outlook for 2009, some SLSD transactions, particularly in the real estate sector, experienced negative rating actions, Fitch said.