Mumbai: The default on repayment of auto loans could increase by 25-50% as compared to pre-pandemic levels in 2021 due to a lag effect of macroeconomic stress according to a report from Fitch Ratings.
The net cumulative 90+ days past due (DPD) arrears of Indian auto-loan securitisations could rise by a factor of 1.25-1.50, the credit rating agency said. This, after several leading lenders in this space reported that loan repayments have been better than expectations, as ET reported on 14 November.
Lenders like HDFC Bank, Shriram Transport Finance, Mahindra Finance and AU Small Finance Bank said that repayments have been normal and in many cases, the collection efficiency was upwards of 90%.
However, the improved collections rates could be because some of the borrowers may have built sufficient liquidity during the loan payment holiday to resume repayment in September and October despite adverse cashflow situation, according to Fitch.
“We expect such borrowers to experience difficulty in making repayments over the next few months due to the stressed macroeconomic environment, lifting arrears in 1H21 (first half of FY21) with a lag effect,” the report read.
“We have a negative sector outlook on auto-loans.”
The current arrear positions do not reflect the market reality, according to the report. Arrear positions were frozen at the end of February 2020 and only resumed ageing once the moratorium period ended. At the end of September 2020, 90+ DPD arrears for Fitch’s rated portfolio averaged around 1.4%, the same as the 2019 level of 1.3%.
“The rise in arrears on the books of originators is likely to be more severe than that in securitised pools.”
India’s total vehicle loan book stood at Rs 2.19 lakh crore at the end of August 2020, which accounts for 8% of total personal loans, according to the RBI data.
Fitch has forecasted India’s GDP to contract by 9.4% in FY21 before expanding by 11% in FY22 from a low base.
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