The recent exercise to ban certain high-value denominated notes has proved ‘negative’ for the Indian auto asset backed securities (ABS) in the short term, Moody's Investors Service has said.
This has led to 1.3 per cent decline in collections for November 2016 and December 2016 and a 1.9-per cent increase in 30+ days delinquencies in December 2016, this international rating agency said in a new report.
However, the report highlighted that this negative impact of demonetisation is expected to be short lived.
ABS are bonds backed by financial assets and typically these assets consist of receivables such as credit card receivables, and auto loans.
During December 2016 — the first month when the full effects of demonetisation were felt — the 30+ days delinquency rate for Indian auto ABS increased 1.9 percentage point to 10.9 per cent from 9 per cent in October 2016.
On the other hand at 0.6 per cent, 0.5 per cent and 0.3 per cent, the increase in 60 + days , 90+ days and 180+days delinquency rates, respectively and over the same period, were more subdued.
“In such an environment, we expect the performance of the 15 Indian auto ABS transactions that we rate to continue to be weaker than was the case prior to demonetisation until at least the end of March 2017, owing to the temporary drag on consumption and investment triggered by the policy announced on 8 November 2016,” said Vincent Tordo, a Moody’s analyst.
Moody’s notes that demonetisation has disrupted the recovery observed in the commercial vehicle (CV) loan segment for the past two years.
According to ICRA data, CV loan delinquencies fell to 6.3 per cent in June 2016 compared with peak levels of about nine per cent at the end of 2014.
However, the deterioration in performance has been limited to early-stage delinquencies and supports Moody’s expectations of a short-lived slippage in performance and proactive delinquency management by servicers, rather than as a precursor of permanent losses.