A survey was conducted by Icra a rating agency in which it found higher tendency for default in the commercial vehicle loans that were extended recently, than old advances.
The large number of borrowers are being brought into the line in a segment that is growing fast (buoyant) and there is certain lowering of credit criterion.
Kalpesh Gada, head of structured finance products at the affiliate of global rating agency Moody’s, said these factors are likely to increase the defaults among recent commercial vehicle loans.
While the rate of interest for new CV loans (which are governed at fixed rate) is higher, it does not play much part in delinquency. He added the time period for loan repayment CV loans is 3-4 years as a result, hike in rate does not impact heavily the payment capability.
An updated report was released by Icra on the performance till September 2007 of the various asset-backed securitization (ABS) transactions rated by it.
When we compare between the cumulative loss ratio and the loss-cum-delinquency ratio, the rise in delinquency level has been much higher than the rise in the crystallized losses. Given that the newer pools (originated in 2005 and 2006) have sizeable balance tenure, the extent of ultimate losses in the pool would be driven by recovery from delinquent accounts.
Analysis done on certain matured pools indicates that delinquency levels on average peak at around 22 months post origination. The sizable recovery has been observed even from the 180+ day bucket in the case of CVs.
Among the matured pools, the losses and overdue at the end of the pools life were around 2 per cent in the case of car/multi-utility vehicle pools and around 1.8 per cent in the case of CV loan pools.
The report present a summary of the performance of 118 ICRA-rated ABS pools (pools that were active between December 2005 and September 2007) till September 2007.
The key performance points out that ICRA looks at are the aging profile of a securitized pool, collection efficiency ratios, and the rate of foreclosure of contracts.
In addition to these pool performance-related issues, ICRA also takes in consideration factors such as maintenance of credit quality of the Originator and performance of the overall portfolio of the Originator during its surveillance of the rated pools.
An essential factor of the regular monitoring of ratings assigned for ABS issues is evaluation of the adequacy of the available credit enhancement.
ICRA has rated 150 Asset Backed Securitization (ABS) transactions till date, with the rated amounts totaling around Rs 38,800 crore.
Amongst the receivables the assets such as classes of cars, commercial vehicles (CVs), construction equipment (CE), three-wheelers, two-wheelers, consumer durables and personal loans are covered.
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