India Ratings sees rise in commercial vehicle loan defaults

MUMBAI: Commercial vehicle loans could see a rise in defaults from the next quarter due to sluggish freight demand and overall downturn in the economy, according to India Ratings.

"India Ratings believes that delinquencies in commercial vehicle (CV) loan space could increase in the next quarter. Our projection is based on early delinquency index rising to 6.51 per cent in the second quarter from 5.71 per cent in Q1," the ratings agency said in a report.

The profitability of CV operators and their ability to service debt continue to suffer due to sluggish freight demand with the index of industrial production shrinking continuously for the past many months, it said.

"India Ratings observed early signs of stress in 2013 vintage CV loans in the June quarter with weighted average delinquencies reaching 1.45 per cent within five months of average seasoning," the report said.

However, the delinquencies remain within the agency's expectations and are unlikely to result in any stress on transactions' rating, the report said.

Against this, during the same quarters last year, CV loans witnessed some signs of reprieve, with the weighted average of delinquencies dropping by 0.5 per cent quarter on quarter from 3.87 per cent, the report said.

Noting that margin squeeze has also been due to hikes in diesel prices without a commensurate rise in freight rates, the report said this indicates that for vehicle operators to have enjoyed similar margins as in 2010, freight rates should have increased by at least 30-40 per cent.

"However, this has not happened due to dampened freight demand," the report said.