Fitch, Auto News, ET Auto
Mumbai: Auto loan default could rise 25-50% from pre-pandemic levels in 2021 due to a lag effect of macroeconomic stresses, according to a report by Fitch Ratings.
Cumulative net arrears more than 90 days past due (DPD) of Indian car loan securitisations could rise by a factor of 1.25 to 1.50, the rating agency said. This, after several leading lenders in this space reported that loan repayments had been better than expected, as ET reported on Nov. 14.
Lenders like HDFC Bank, Shriram Transport Finance, Mahindra Finance and AU Small Finance Bank said repayments have been normal and in many cases collection efficiency is over 90%.
However, the improvement in collection rates could be due to the fact that some of the borrowers may have accumulated enough cash during the loan payment holiday to resume repayment in September and October despite an unfavorable cash position, according to Fitch. .
“We expect these borrowers to have difficulty making repayments over the coming months due to the tight macroeconomic environment, lifting arrears in HY21 (first half of FY21) with a lag effect. “, says the report.
“We have a negative sector outlook on auto loans.”
Current arrears positions do not reflect market reality, according to the report. Positions in arrears were frozen at the end of February 2020 and only resumed aging once the moratorium period ended. At the end of September 2020, arrears of more than 90 DPDs for Fitch’s rated portfolio averaged around 1.4%, the same as the 2019 level of 1.3%.
“The increase in arrears on the books of originators is likely to be more severe than that of securitized pools.”
India’s total car loan portfolio stood at Rs 2.19 lakh crore at the end of August 2020, accounting for 8% of total personal loans, according to RBI data.
Fitch forecast India’s GDP to contract 9.4% in FY21 before rising 11% in FY22 from a weak base.