For the first time in three years signs of weakness are emerging in the performance of commercial vehicle (CV) loans, according to Crisil Ratings.

Delinquencies in CV loans are increasing, with monthly collection ratio (MCR) of Crisil-rated CV pools dropping below 95 per cent for the first time since 2009, as per the portfolio analysis of non-banking financial companies (NBFCs).

This decline in collection efficiency indicates that borrowers are increasingly delaying repayments. There is, therefore, a likelihood of increase in non-performing assets (NPAs) over the next few quarters.

Weak performance

Says Pawan Agrawal, Senior Director, Crisil Ratings, “The performance of heavy CV loans is the weakest, because of a sluggish economy, industry overcapacity, and increasing input costs.”

The sub-par collection levels may continue over the next few quarters, reflecting the adverse impact of reduced freight demand on CV owners and their inability to pass on increases in fuel and labour costs.

Transport operators’ earnings and debt-servicing capability has been eroded substantially. Hence, the delinquencies are likely to gradually deepen and move beyond 180 days, leading to a potential rise in NPA levels, said Crisil in its report.

The report said that the 90-plus days-past-due levels, an indicator of loans not repaid for more than 90 days, has increased by about 100 basis points over the last nine months ended December 2012.

The NBFCs, under the aegis of the Finance Industry Development Council, had made a plea to the Reserve Bank of India that since they largely cater to the “un-banked” segments of society, it would be imprudent to bring the asset classification norms of NBFCs (a loan becomes non-performing if interest/principal is unpaid for 180 days) at par with banks.

The Usha Thorat committee on issues and concerns in the NBFC sector had recommended the switch from 90-days past due to 180-days.

(This article was published on April 8, 2013)
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