‘Note ban negative for auto asset backed loan in short term’
Team Udayavani, Feb 13, 2017, 11:45 AM IST
New Delhi: Demonetisation has negatively impacted the performance of Indian auto asset backed loans in the short term and the effect will last until March, Moody’s Investors Service today said.
“The Indian government’s decision to remove a high proportion of currency notes from circulation in November 2016 has proved negative for the performance of Indian auto asset backed securities (ABS) in the short term, leading to a 1.3 per cent decline in collections for November and December 2016,” it said in a report.
Looking ahead, Moody’s expects ABS delinquencies and collections to return during 2017 to levels prior to demonetisation, as the economic slowdown triggered by notes ban wanes, oil prices remain around current levels and positive policy initiatives in Budget take hold to support earnings of CV operators.
Moody’s notes that demonetisation has disrupted the recovery observed in the commercial vehicle (CV) loan segment for the past two years. According to ICRA data, CV loan delinquencies fell to 6.3 per cent in June 2016 compared with peak levels of about 9 per cent at the end of 2014.
“In such an environment, we expect the performance of the 15 Indian auto ABS transactions that we rate to continue to be weaker than was the case prior to demonetisation until at least the end of March 2017, owing to the temporary drag on consumption and investment triggered by the policy announced on November 8, 2016,” Moody’s Analyst Vincent Tordo said.
However, the deterioration in performance has been limited to early-stage delinquencies and supports Moody’s expectations of a short-lived slippage in performance and proactive delinquency management by servicers, rather than as a precursor of permanent losses.
“Cash collateral and excess interest spread protect Indian auto ABS against the drop in collections, and we note that such securities have large levels of cash collateral and excess interest spread, leaving them well placed to withstand the impacts of demonetisation and the economic slowdown,” Tordo said.
The Budget announcement of income tax cuts as well as lower rates of MSMEs will increase the disposable incomes of people with CV loans, which will be positive for the performance of auto ABS backed by such loans.
Udayavani is now on Telegram. Click here to join our channel and stay updated with the latest news.
Delta plus: New Covid variant identified, experts say no cause of concern for now
Mangaluru: Cops arrest two including Omani national for possessing Ganja and MDMA
Arvind Kejriwal inaugurates Gujarat AAP office
Related Articles More
Reports of its foreign investors’ accounts being frozen ‘blatantly erroneous,’ says Adani Group
Journo who exposed Harshad Mehta scam hints at another scandal; trends on Twitter
Rupee slips 14 paise to 73.21 against US dollar in early trade
Baba Ramdev’s Ruchi Soya files FPO document to raise up to Rs 4,300 cr
Amazon India to impart core machine learning skills to make students industry-ready
Journalist’s death in UP: Priyanka says state govt ”nurturing jungle raj”
Facing defeat in next assembly polls, UP BJP govt harassing SP leaders, workers: Akhilesh
I will pay for education of children orphaned by Covid-19: R Ashoka
Huge traffic jams in Bengaluru after easing of lockdown restrictions
Farmers across India suffering due to Centre”s indifference: Mamata