Auto loan delinquencies to rise due to Covid impact: Moody’s

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June 19, 2020 1:01 AM

The commercial vehicle sales in India declined 28.75% in the 12 months ended March 31, 2020, compared with the same period a year earlier.

The performance of the Indian auto loan ABS that we rate deteriorated over the first quarter of 2020 compared with the previous quarter. The performance of the Indian auto loan ABS that we rate deteriorated over the first quarter of 2020 compared with the previous quarter.

Auto loan delinquencies increased in the first quarter of 2020 and auto loan performance will continue to deteriorate over the next few quarters, given the economic disruptions caused by the Covid-19 pandemic and the extension of payment moratorium for term loans, Moody’s Investors Service said in a new report on Thursday.

The weakening economy will hurt demand for freight transport and freight rates, which will constrain transport operators’ earnings and their abilities to repay commercial vehicle loans. The effects will be more significantly negative if the outbreak spreads and there is a prolonged suspension of business activity. However, declining oil prices will reduce operating costs for commercial operators, which will mitigate risks, the global agency said, adding, in India, the delinquency rate for Moody’s-rated auto loan ABS (asset-based securities) increased across all buckets in the first quarter of 2020 compared with the previous quarter.

According to Moody’s, in India, the issuance of ABS backed by commercial vehicles and construction equipment totalled around Rs 31,300 crore for the 12 months that ended in March 2020, up from around Rs 30,500 crore over the year to March 2019.

In specific to India, Moody’s, in its new report on the performance of APAC auto loan asset-backed securities (ABS), said, “The performance of the Indian auto loan ABS that we rate deteriorated over the first quarter of 2020 compared with the previous quarter. Delinquency rates increased across all buckets. On an original balance basis, the 30+, 60+, 90+ and 180+ days delinquency rates for Indian auto ABS we rate were 7.25%, 3.37%, 1.56% and 0.56%, respectively, in March 2020, up from 5.49%, 2.66%, 1.09% and 0.40% in December 2019.”

“On a current balance basis, the 30+, 60+, 90+ and 180+ days delinquency rates for Indian auto ABS we rate were at 18.86%, 8.77%, 4.06% and 1.46%, respectively, in March 2020, up from 13.33%, 6.45%, 2.64% and 0.97% in December 2019,” it added.

The commercial vehicle sales in India declined 28.75% in the 12 months ended March 31, 2020, compared with the same period a year earlier. The economic slowdown in India has hit demand for freight transport and therefore demand for commercial vehicles. “Financing conditions for commercial vehicle operators are also tight. Loans on commercial vehicles account for the highest percentage of assets in Indian auto ABS we rate,” the report further said.

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