Monsoon to boost commercial vehicle loans post demonetisaton: Moody's, Icra

Pick up in rural economy to be positive for retail loan asset classes

Credit rating agencies Moody's Investors Service and Icra on Thursday said a well-distributed and timely monsoon will be pivotal for a continued recovery in the performance of a range of retail loans impacted by demonetisation.

According to a statement, Moody's believes that a normal monsoon will boost the performance of commercial vehicle (CV) loans backing Indian asset-backed securities (ABS) transactions.

Besides, according to Icra, a pick-up in the rural economy -- owing to a normal monsoon and government support -- will be positive for retail loan asset classes like tractor and microfinance loans.

The India Meteorological Department (IMD) and private forecaster Skymet have predicted a normal and well-distributed monsoon, that is, rainfall is expected to be 96 per cent ±5 per cent of the long period average.

The statement said a normal monsoon, coupled with thrust from the government policies such as minimum support price (MSP) and welfare schemes like NREGA (National Rural Employment Guarantee Act) would help in improving rural household incomes and therefore improving repayment ability on loan obligations.

"With road transport being a major means of transporting agricultural produce from the farms to the market, commercial vehicle operators are expected to benefit from a normal monsoon," said Dipanshu Rustagi, Assistant Vice President - Analyst, Moody's Investors Service.

"A normal monsoon would result in better freight availability, improve utilisation of the existing fleet and support freight rates."

Moody's expects the performance of CV loans in Indian auto ABS transactions to continue to recover after a deterioration post-demonetisation. The expected improvement in performance would be underlined by a healthy level of economic activity and stable diesel prices in India, the statement said.

"The 90+ delinquencies for Moody's-rated Indian auto ABS transactions inched up to 1.6 per cent as of March 2017 as compared to 1.0 per cent in October 2016, and recovered marginally to 1.4 per cent as of April 2017," it added.

The statement highlighted that tractor loan repayments had been impacted by demonetisation, as loan servicing in this asset class is significantly cash-based. Demonetisation had resulted in the delayed realisation of payments for farmers from crop sales -- a major contributor to farmer incomes.

"Collection efficiencies in ICRA-rated tractor pools moderated to around 80 per cent in December 2016 from around 95 per cent in October 2016. However, with currency availability ceasing to be an issue, the pools have exhibited robust performance with collection ratios of more than 100 per cent during January to March 2017," said Rohit Inamdar, Group Head and Senior Vice President - Financial Sector Ratings, Icra.

"The strong collection performance in this asset class is expected to continue going forward."

As per the ICRA statement, an estimated 50 per cent of lending in the microfinance loan segment happens in the rural areas.

Assuming no incremental adverse development in this sector, Icra expects pool performance to improve with collection ratios reaching around 95 per cent over the next six months or so, it added.