The steady cash flows from infrastructure projects like roads, helped companies that rent out construction equipment (CE), to keep loan defaults low as compared to commercial vehicle (CV) fleet operators during slow economic growth period, according to a study by rating agency.
A review of securitised loan pool across asset classes of Rs 46,300 crore reveals that loans given for acquiring CEs have had lower delinquency levels when compared to that for cars and CV loan pools.
Head of structured finance products Kalpesh Gada said that in the aftermath of global financial meltdown the trade slowed down. That meant truck operators had to face truck operators load availability issues. Plus the payments to them by clients were delayed. This put pressure on cash flows, resulting in defaults in some cases, he said.
The prepayment rate has also been very low in the case of CE pools when compared to car and CV pools. Those operating CEs prefer to deploy excess funds into business than repayment loans before the end of tenure.
The repayment pattern in the case of car owners is different. There is a higher incidence of prepayment, as households have tendency to reduce debt obligations as early as possible. Plus, car owners would like to get rid of existing loans before changing a model or taking another vehicle, Gada said.
The use of cash collateral, an arrangement to enhance strength, for paying those investing in securitised paper shows that in the case of matured CVs, cars and CE loan pool usage was around 30 per cent. For a few pools, where the defaults build-up was higher than expected, the peak cash collateral utilisation has been more than 60 per cent.
Amongst CV pools, those securitised recently have shown a relatively better performance than loan pools belonging to 2005-06 period.
ICRA has rated 195 transactions till date across 22 entities. The receivables involved cover the asset classes of cars, CVs, CE, three-wheelers, two-wheelers, gold, microfinance and medical equipment.
