Increase in auto loan defaults reflects the uneven impact of the pandemic

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Certainly, some lenders will suffer more than others from the increase in defaults.

For example, Shial of Emkay points out that Bajaj Finance has a high exposure to the Maharashtra belt due to sales-related loans from Bajaj Auto.

“Even though the first and second wave of Covid and the lockdown restrictions that followed affected the two- and three-wheeler fundraising business for all companies in the segment, the problem was bigger for Bajaj Finance, mainly in due to its strong exposure in the coach segment of Bajaj Auto, as well as the concentration of its activities in Maharashtra where the patrial lockdown persists, ”said Shial.

Other lenders with relatively large exposure to two-wheeler and three-wheeler loans include Shriram City Union Finance Ltd. and Muthoot Capital Services Ltd.

Of the total loans worth Rs 1,917 crore given to two-wheeler owners, Muthoot Capital saw 12% over 90 days past due as of March 31, 2021. Profits for the quarter ended June n have not yet been announced.

For Shriram City Union, loans to two-wheelers represented about 23%. The lender’s exposure to three-wheeled loans is limited, YS Chakravarti, managing director and general manager of Shriram City Union Finance, told BloombergQuint in a written response. “We expect the asset quality in the two-wheeler and three-wheeler loan portfolios to be stable compared to last year or even show marginal improvement in the first half of fiscal 2022. “, did he declare.

In the case of large banks, pain is often not reflected in the headlines, as the performance of other portfolios, even within the retail lending segment, will offset weakness in a single segment.

Still, most lenders will see a spike in risk in this business.

“Since the two- and three-wheeler industry is a high-risk, high-return type of business, a peak of 250 to 500 basis points was expected due to the second wave of the pandemic. Traditionally, the level of gross NPA in the segment generally remains at 8-10% in any given situation, ”he said.

Bad debt data in individual segments of the auto loan category is not available for the industry as a whole.


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