Despite improved collections, bad loans could rise: Moody’s

MUMBAI: Despite improvement in collection efficiencies delinquencies will continue to rise amid weak economic conditions, Moody’s Investors Service said in a report. The rating agency said that Indian asset-backed securities (ABS) performance risks will remain elevated over the next 12 months, as weak economic conditions will continue to hurt borrowers’ ability to repay loans.“As payment moratoriums came to an end in August, collections in rated Indian ABS improved markedly in September and October, although they remain below pre-coronavirus levels,” says Dipanshu Rustagi, Moody’s Assistant Vice President.Indian asset-backed securities loan collection rates for our rated deals have improved since the end of coronavirus-related payment moratoriums, which shows that many borrowers have resumed repayments after lenders’ grace periods finished.However, loan delinquencies have also increased since moratoriums ended, which highlights that some borrowers have not been able to resume or sustain repayments amid the deep economic contraction triggered by the coronavirus pandemic.According to the agency’s assessment, delinquency rates for rated auto and micro, small and mid-size enterprise (MSME) loan asset backed securities also increased, indicating that some borrowers are not able to resume or sustain repayments amid the deep economic contraction.“Given weak economic conditions, asset performance risks will remain elevated in this environment and we expect delinquencies in auto loan ABS and MSME loan ABS will continue to increase over the next 6 to 12 months,” added Rustagi. “Though, government’s support measure and existing transaction features will mitigate some of the risk.”Over the next six to 12 months, the weakened economy will continue to hurt commercial vehicle and MSME borrowers’ earning prospects and their abilities to repay loans. Asset performance risks will remain elevated in this environment and Moody’s expects auto loan and MSME loan delinquencies to continue to increase.In November, the Indian government announced a Rs 2.7 trillion fiscal support package, which will benefit borrowers in the MSME sector.
Read More

Leave a Comment

Your email address will not be published. Required fields are marked *