OREANDA-NEWS.  The credit enhancement (CE) levels of six Indian auto asset-backed securitisation (ABS) transactions have been reset with no rating impact since the Reserve Bank of India (RBI) released guidelines on CE reset in July 2013. Four of these transactions were originated and serviced by Sundaram Finance Ltd. (Sundaram), one by Shriram City Union Finance Ltd. (SCUF), and one by Cholamandalam Investment and Finance Co., Ltd. (CIFCL). Fitch expects the volume of CE resets in Indian transactions to rise as the sector matures.

"CE reset" is an Indian term referring to the removal of credit enhancement from a transaction during its life. Indian ABS portfolios are static and start amortising from each transaction's closing date. As a result, when transactions perform well with minimal or no losses, transactions become super enhanced as the notes pay down and continue to benefit from the full, original credit enhancement. The RBI guidelines were designed to address this problem, and provided certain conditions are met, the central bank now allows transactions to "reset" the enhancement level by shedding credit support.

The RBI allows CE reset of Indian ABS transactions if, among other criteria:
- a given pool demonstrates satisfactory asset performance;
- there is no rating impact after the reset on the transaction; and
- the transaction has amortised by at least 50%.

A pool meets the criteria of satisfactory asset performance if:
- the sum of all overdue loans (more than one day past due) and other losses does not exceed 50% of the available first loss and second loss credit facilities, and
- such sum also does not exceed 50% of the amortisation-adjusted amount of first loss and second loss cover, which is the closing CE multiplied by the percentage amortisation at the time of reset.

A maximum of 60% of the excess CE above the minimum CE for retaining the existing rating on each pass-through certificate can be released. The release is subject to a floor of 30% of the original CE.

The originators have confirmed and Fitch verified that all the six reset transactions met these regulatory criteria at the time of reset.

For each reset, Fitch reviewed the asset performance of each transaction, incorporated its expectations of future performance and assessed whether each rating would retain sufficient protection to protect the current ratings assigned to the notes throughout their remaining life.

Fitch currently rates 21 Indian auto ABS transactions originated by leading non-banking financial companies, namely Shriram Transport Finance, Shriram City Union Finance, Cholamandalam Investment Finance, Tata Motors Finance, and Sundaram Finance. The PTC ratings of all the Fitch-rated Indian ABS transactions that have not been reset remain at 'BBB-sf'. A full list of Fitch's Indian ABS ratings can be found at www.fitchratings.com