High stress in commercial vehicle loans abating: India Ratings

Domestic rating agency India Ratings today said that high stress in commercial vehicle financing is abating, but construction equipment loans continue to be a source of worry.
"Commercial vehicle loans may finally be on the path to recovery," the agency said, giving data about how the scenario is improving with the upbeat economy.
However, construction equipment, which makes the other part of the commercial vehicle-commercial equipment book for lenders, is yet to take off due to difficulties being faced by mining and infrastructure sectors, it said.
"Construction equipment loans remain stressed due to the slow growth rate in the mining and infrastructure sectors," it said.

It may be noted that sluggishness in economic activity during the last three years along with judicial actions like mining bans, had resulted in high incidence of asset quality stress for banks.
Even private sector lenders, who are perceived to be stricter with underwriting, experienced stress and stayed off this segment.

The Early Delinquency Index (EDI) on commercial vehicles segment has fallen to 7.19 per cent in February 2015 from 8.05 per cent in February 2014, it said.
Transactions securitised in 2014 have also shown a better performance with 90 plus days past due delinquencies being lower than those for 2013, it said.

However, for construction equipment, the weighted average delinquency rose sharply to 4.94 per cent in February 2015 from 3.23 per cent in February last year.
"Higher delinquencies were observed in 2013 and 2014 with weighted average 90 plus days past due delinquencies reaching 5.36 per cent and 4.50 per cent in February 2015, respectively," it said.
However, the agency has not taken any rating actions due to availability of excess interest spread and sufficient credit enhancement levels with lenders.