There was a marginal deterioration in the performance of commercial vehicle loans, as collection efficiency declined and delinquency increased over July 2016-July 2017. The performance of construction equipment loans continued to improve on account of an improved asset usage. Tractor loans registered a recovery after demonetisation. An improved crop output, supported by a strong southwest monsoon in 2017, is likely to further aid the recovery in the performance of tractor loans. Microfinance loans remain stressed after demonetisation, with the stress permeating into deeper delinquency buckets over time. MBS transactions continued to show a stable performance, supported by adequate credit enhancement cover. Sluggish property prices and low liquidity for high-value properties remain key challenges for loan against property.
Collections under commercial vehicle loans, measured by cumulative collection efficiency, declined by about 300bp to 92.3% in July 2017 from a high of 95.2% in May 2016, leading to a rise in the early delinquency index (EDI) measured by weighted average (WA) 30+dpd, which increased to 7.99% in July 2017 from 5.21% in July 2016. The WA 90+dpd delinquency increased to 2.45% in July 2017 from 2.14% in July 2016. The decline in the collection efficiency and the increase in the delinquency in commercial vehicle loans over July 2016-July 2017 are reflected in the performance of the 2016 vintage, which performed worse than the 2014 and 2015 vintages with similar seasoning levels.
Construction equipment loans continued to improve, with the WA 90+dpd delinquency declining to 0.50% in July 2017 from 2.86% in July 2016. Even the EDI moderated to 3.63% in July 2017 from 6.25% in July 2016. An improved asset usage, due to a rise in mining and infrastructure activity, supported by higher infrastructure spending in FY16 and FY17, led to the improved performance of construction equipment loans.
Tractor loans registered a recovery after demonetisation, indicated by a reduction in the delinquencies in the WA 60+dpd and WA 90+dpd buckets to 7.36% and 3.90% in July 2017 from a peak of 9.39% and 4.58% in March 2017, respectively. Furthermore, better performances of the 2016 and 2017 vintages indicate an improvement in the asset quality. The peak WA 90+dpd delinquency for the 2016 and 2017 vintage loans stood at 4.08% and 0.55%, respectively, against a peak WA 90+dpd delinquency of 9.38% of the 2014 vintage. The improvement in the asset quality was driven by an uptick in agriculture output due to a strong crop output and a strong monsoon.
Microfinance (MFI) loans continued to be stressed after demonetisation. The WA 0+dpd delinquency, which was 0.47% in October 2016, peaked at 11.09% in January 2017 and was 7.06% in July 2017. The sustained stress in MFI loans permeated into deeper delinquency buckets, with the gross loss index measured by WA 90+dpd increasing to 4.32% in July 2017 from about 0.38% in July 2016. The stress is reflected in the performance of the 2017 vintage; the WA 90+dpd increased to 1.62% in the seven months since the issuance and the WA 0+dpd remains at 3.24% in the seven months since the issuance from a high of 4.63% in two months since the issuance.
Ind-Ra-rated MBS transactions registered a stable performance on account of an upright pool performance and adequate credit enhancement. The WA 90+dpd delinquency hovered at about 0.5% in 1HFY18.
LAP witnessed an increase in delinquencies over July 2016-July 2017. The WA 90+dpd delinquency rose to 1.1% in July 2017 from 0.2% in July 2016 and the 180+dpd increased to 0.49% in July 2017 from about 0.10% in July 2016. Sluggish property prices and low liquidity for high-value properties remain key challenges for the asset class.
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