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  • India Ratings and Research (Fitch Group): FY19: Stable Performance in CV, CE Loans; Improvement in Tractor & MFI Loans; Caution on LAP

    Published on May 13, 2019

    Mumbai: Tractor and microfinance institution (MFI) loans rated by India Ratings and Research (Ind-Ra) continued to improve in FY19. The delinquency indices for commercial vehicle (CV) and construction equipment (CE) loans remained stable. The performance of the loan against property (LAP) segment weakened with an increase in delinquencies and a fall in recoveries due to sluggish, illiquid property markets in the metropolitan cities.

    CV Loans

    Ind-Ra’s early delinquency index for rated CV loans fell to 7.53% in January 2019 from 8.19% in January 2018. The improvement in the performance of CV loans has mainly been on account of a moderate uptick in freight rates and changes in government norms such as revised axle load norms, which have led to adequate asset utilisation and, hence, regular cash flows for borrowers, thereby ensuring timely debt servicing.

    New vehicle loans have performed better than the used vehicle loans. Among the portfolio of originators whose asset-backed security transactions are rated by Ind-Ra, the 90+ days past due (dpd) of CV loans have improved across states. Loans originated in states such as Uttar Pradesh, Bihar and Jharkhand showed a relatively high delinquency levels. On the other hand, states such as Gujarat and Andhra Pradesh performed better.


    Poor sentiment in the property market and the liquidity crunch faced by non-banking financial corporations weakened the performance of LAP in FY19. The delinquency indices for Ind-Ra-rated LAP transactions have been on the rise, with the early buckets showing an uptrend. Delinquencies among Ind-Ra-rated LAP transactions continued to rise, with the 90+ dpd increasing to 1.77% in January 2019 from 1.05% in January 2018. Also, high delinquencies have been observed among high loan-to-value and high-yield buckets.

    Tractor Loans

    All delinquency indicators for Ind-Ra-rated tractor loan transactions improved over FY18 and FY19. Also, the trajectory of 2017 and 2018 loan vintages performed better than earlier vintages. Delinquencies in tractor financing among originators of Ind-Ra-rated transactions fell 33% yoy in December 2018.

    MFI Loans

    The MFI loan segment’s performance improved on account of capital infusion, desire to diversify into newer geographies, and significant improvement and updates in underwriting standards.  While the Gross Loss Index of 90+ dpd reduced to 0.23% in January 2019 from 4.41% in January 2018, there were similar movements in the EDI of 0+ dpd to 0.78% from 4.96%.

    CE Loans

    2016-18-originated CE loans performed better than loans that were originated previously due to ample infrastructure spending that led to better asset utilisation. Among Ind-Ra-rated CE loan transactions, 90+ dpd stabilised at around 1% since March 2017.