CV loan stress hits new peak at 3% in Q2: India Ratings

Vintage (long maturities) CV loans defaulted faster than other vintages in the year.

PTI| Last Updated: Dec 06, 2013, 15:25 PM IST

Mumbai: India Ratings on Friday said stressed assets in the commercial vehicles (CV) loan books of lenders hit a new high of 3 percent in September quarter due to the lingering slowdown.

It cautioned that the asset quality stress will continue at least for the next two quarters.

"Delinquencies of CV loans rose to 3 percent in the September quarter from 2.4 percent a year ago," India Ratings said in a note.

The agency warned that it does not expect any reprieve in the next two quarters as its early delinquency index rose to a high of 8.2 percent during the reporting period from 6.5 percent y-o-y, suggesting deterioration in asset quality has not yet bottomed out.

The agency, however, said this is in line with its stable-to-negative outlook for CV loans for this year as transactions continue to have stable outlook due to availability of excess interest spread, sufficient credit enhancement levels and fully amortising nature of underlying loans.

Noting that vintage (long maturities) CV loans defaulted faster than other vintages in the year, it said for 2013 vintage pools, the 90+days delinquencies more than doubled to 3.2 percent in the reporting period from 1.45 percent. Such delinquencies were 2.6 percent and 1.9 percent in the corresponding quarters in 2012 and 2011.

Stating that the asset-backed securitisation deals are showing some reversal of established trends, the report said "in recent times, the performance of loans at loan-to-values is over 80 percent and new CV loans has deteriorated compared to lower LTV and used CV loans.

"This indicates that even credit worthy borrowers may not remain insulated in times of economic slowdown."

Construction equipment loans also showed signs of stress recording a new delinquency peak of 3.4 percent from 1.5 percent y-o-y, largely contributed by 2012 vintage loans.

However, the report said the rise in delinquencies has not resulted in any negative rating actions, mainly due to substantial credit enhancement build-up.

The recent positive sentiments reflected by a 3.3 percent y-o-y rise in the mining index may cushion transactions from further rise in delinquencies, the report added.