Home / Industry / Banking /  NPAs in auto sector to remain high for up to 1 year: Moody’s

Mumbai: Auto loan delinquencies are likely to remain elevated over the next six to twelve months, Rating agency Moody’s on Wednesday said.

With reduced demand for freight transport and lower freight rates, and rising fuel costs, the rating agency expects commercial vehicle operators to find it difficult to pass on additional costs to customers.

“Low freight rates and rising fuel costs will continue to pressure commercial vehicle operators’ financial viability, which in turn reduces their ability to service commercial vehicle loans. Most commercial vehicle operators will find it difficult to pass on additional costs to their customers in the weak operating environment," it said.

According to Moody’s, collection rates for auto loan asset-backed securities have significantly improved in the quarter ending 31 December 2020 as compared with the previous quarter.

Collection rates are around 95%, similar to levels before coronavirus-related payment moratoriums, it said. Asset-backed securities (ABS) are pools of loans that are packaged and sold to investors as securities through a process known as securitization.

“Despite improving collection rates, delinquencies continued to rise in the December 2020 quarter, mostly from the 31-60 days past due buckets," it noted.

For Indian auto ABS rated by Moody’s, 80%-100% of underlying loans were on coronavirus-related payment moratoriums between March and August 2020.

During the payment moratorium period, lenders did not report moratorium loans as delinquent.

As a result, delinquency rates in conjunction with monthly collection ratios provided a better representation of the extent of problem loans in Indian ABS portfolios than delinquency rates alone.

Commercial vehicle sales in India declined 37.2% in the nine-months ending December 2020 compared with the same period in 2019 because of the coronavirus-induced economic downturn. Loans on commercial vehicles account for the highest percentage of assets in Indian auto ABS rated by Moody’s.

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