Mumbai: With the road transport sector remaining under pressure, defaults on commercial vehicle loans are set to increase in the December quarter, India Ratings Research, part of the Fitch Group, said in a note on Thursday.
The warning is based on the firm’s early delinquency index (EDI) rising to 6.51% in the April-June quarter from 5.71% in the preceding three months.
The delinquencies, however, are within the agency’s expectations and unlikely to result in any stress on transactions’ rating, it said.
The profitability of commercial vehicle operators and their ability to service debt continue to suffer due to sluggish freight demand owing to the contraction in industrial output for eight of the last 15 months.
Margins have also been squeezed due to increases in diesel prices without a commensurate rise in freight rates. “...For vehicle operators to have enjoyed similar margins as in 2010 (given around 65% hike in diesel prices since December 2010), freight rates should have increased by at least 30-40%. However, this has not happened due to dampened freight demand,” India Ratings said in its statement.