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The performance of commercial vehicle loans touched a new low in the third quarter (to September 30) of the ongoing calendar year, India Ratings & Research has said. The Fitch Group’s credit rating agency, in its quarterly analysis, found that “even creditworthy borrowers may not remain insulated in times of economic slowdown”.
The rating agency said, continuing slowdown and slump in the road transport sector were behind increasing delinquencies. The weighted average of (90-plus days of arrears) delinquencies of commercial loans rose to 3 per cent in Q3 from 2.4 per cent in the second quarter of 2013.
It said that higher delinquencies were seen in Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra and Gujarat, driven by increased contribution of loans having loan-to-value ratio of over 80 per cent.
Defaults Defaults on new commercial vehicle loans were higher than those in case of borrowings for used vehicles. Additionally, in the new CV segment, small commercial vehicles and passenger vehicles have seen higher-than-average defaults.
“Delinquencies in transactions (originated in 2012 and 2013) have shown a faster rate of default as compared to previous vintages”, the agency report said. This was owing to the stress on the operating margins of the borrowers, it added.
The agency did not expect any reprieve in the next two quarters as its forward looking indicator Early Delinquency Index (EDI) rose to 8.2 per cent in Q3 from 6.5 per cent in Q2. In the first quarter, the EDI was at 5.7 per cent.
This suggested the deterioration in asset quality had not yet bottomed out, it said.
“This is in line with India Ratings’ stable to negative outlook for commercial vehicle loans for 2013. However, transactions continue to have a stable outlook due to the availability of excess interest spread, sufficient credit enhancement levels and fully amortising nature of underlying loans”, it added.
Construction equipment loans also showed signs of stress in the third quarter, recording a new peak in delinquency of 3.4 per cent, up from 1.5 per cent in the second quarter.
“However, the increase in delinquencies has not resulted in any negative rating actions, mainly due to substantial credit enhancement build-up. The recent positive sentiments reflected by a 3.3 per cent y-o-y rise in the Mining Index may cushion the transactions from further rise in delinquencies”, India Ratings note said.
> jayanta.mallick@thehindu.co.in
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