Favourable monsoon is likely to brighten outlook for recovery in microfinance, tractor and will be a boost for commercial vehicles (CV) loans, Moody’s Investors Service and its Indian affiliate, ICRA said here in a joint report. A well distributed and timely monsoon would be pivotal for the continued recovery in the performance of a range of retail loans impacted by demonetization, the report said. Moody’s believes that a normal monsoon will boost the performance of commercial vehicle loans backing Indian asset-backed securities (ABS) transactions, ICRA said that a pick-up in the rural economy-owing to a normal monsoon and government support – will be positive for retail loan asset classes like tractor and microfinance loans.
The Indian Meteorological Department (IMD) and private forecaster Skymet have predicted a normal and well distributed monsoon, which is expected at 96 per cent 5 per cent of the long period average. A normal monsoon, coupled with thrust from the government policies such as minimum support price (MSP) and welfare schemes like NREGA may help in improving rural household income and consequently repayment ability on loan obligations.
“With road transport being a major means of transporting agricultural produce from the farms to the market, commercial vehicle operators are expected to benefit from a normal monsoon. A normal monsoon may result in better freight availability, improve utilization of the existing fleet, and support freight rates,” Moody’s Assistant Vice President – Analyst Dipanshu Rustagi said.
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Moody’s expects the performance of commercial vehicle loans in Indian auto ABS transactions to continue to recover following a deterioration post-demonetisation. The expected improvement in performance would be underlined by a healthy level of economic activity and stable diesel prices in India.
“A pick-up in the rural economy owing to normal monsoons would be positive for retail loan asset classes like tractor and microfinance loans,” ICRA Group Head & Senior Vice President Rohit Inamdar said.
Tractor loan repayments had been impacted by demonetisation as loan servicing in this asset class is significantly cash-based. Demonetisation had resulted in the delayed realisation of payments for farmers from crop sales — a major contributor to farmer’s income.
It is estimated that around 50 per cent of lending in the microfinance loan segment happens in the rural areas. Assuming no incremental adverse development in this sector, ICRA expects pool performance to improve with collection ratios reaching around 95 per cent over the next 6 months.