High defaults in new vehicle loans

Growing number of borrowers, low credit criteria reasons for delinquincy: Icra.

The commercial vehicle loans that were extended recently have shown higher tendency for default than old advances, according to a study by rating agency Icra.

The large number of borrowers is being brought into the fold in a segment that is growing fast (buoyant) and there is certain lowering of credit criterion (read laxity in lending norms).

These factors seems to increase the defaults among recent commercial vehicle loans, Kalpesh Gada, head of structured finance products at the affiliate of global rating agency Moody's, said.

Though the rate of interest for new CV loans (which are govern at fixed rate) is higher, it has small role in delinquency. The loan repayment for CV loans is 3-4 years and the hike in rate does not impact heavily the payment capability, he added.

Icra today released an update on the performancetill September 2007of the various asset-backed securitisation (ABS) transactions rated by it.

The comparison of the cumulative loss ratio and the loss-cum-delinquency ratio shows that the rise in delinquency level has been much higher than the rise in the crystallised losses. Given that the newer pools (originated in 2005 and 2006) have a sizeable balance tenure, the extent of ultimate losses in the pool would be driven by recovery from delinquent accounts.

The analysis of certain matured pools indicates that delinquency levels typically peak at around 22 months post origination. The sizable recovery has been observed even from the 180+ day bucket in the case of CVs.

Among the matured pools, the losses and overdue at the end of the pools life were around 2 per cent in the case of car/multi-utility vehicle pools and around 1.8 per cent in the case of CV loan pools.

The report present a synopsis of the performance of 118 ICRA-rated ABS pools (pools that were active between December 2005 and September 2007) till September 2007.

The key performance indicators that ICRA looks at are the aging profile of a securitised pool, collection efficiency ratios, and the rate of foreclosure of contracts.

In addition to these pool performance-related issues, ICRA takes into account factors such as maintenance of credit quality of the Originator and performance of the overall portfolio of the Originator during its surveillance of the rated pools.

An essential component of the regular monitoring of ratings assigned for ABS issues is evaluation of the adequacy of the available credit enhancement.

ICRA has rated 150 Asset Backed Securitisation (ABS) transactions till date, with the rated amounts totaling around Rs 38,800 crore.

These receivables cover the asset classes of cars, commercial vehicles (CVs), construction equipment (CE), three-wheelers, two-wheelers, consumer durables and personal loans.