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Tractor, micro-finance loans most hit by demonetisation: India Ratings

By Joel Rebello, ET Bureau | Updated: Jan 23, 2017, 05.42 PM IST

MUMBAI: Rural borrowers for tractor and micro-finance loans have been impacted more by the demonetisation of high-value notes last quarter while commercial vehicle (CV) and construction equipment (CE) loans have been hit marginally India Ratings and Research (Ind-Ra) said in a report on the asset-backed securities (ABS) of these loans. 

ABS are bonds backed by financial assets mainly loan receivables. In a note on Monday, Ind-Ra said securities backed by tractor loans witnessed the highest movement of delinquent loans mainly because of the high dependence on cash, lower ATM density, lower internet penetration and limited alternate payment options which have weighed on borrower incomes in rural areas. 

Collections also dropped for micro-finance loans because borrowers are highly dependent on cash. “As of November 2016, the agency has seen the sharpest rise in delinquency of micro-finance loans with 0+dpd (days past due) rising to around 7.6 per cent from less than 1 per cent in October 2016,” Ind-Ra said hit by political interference and local issues along with demonetisation. 

Heavy commercial vehicles were impacted more than passenger vehicles and light commercial vehicles, the agency said. “CV loans have seen a moderate drop in cumulative collection efficiency as about 9.8 per cent of the agency’s rated CV ABS portfolio saw a drop of 5 per cent in cumulative collections in November 2016,”. 


Ind-Ra did a stress test on the portfolio of pass-through certificates (PTCs) to check whether there is moderate stress emanating from drop in collections by an additional 25 per cent for the next six months resulting in liquidity stress or severe stress applied by assuming increase in default rates by an additional 50 per cent from that assumed at the time of the initial rating. 

“Ind-Ra, in its analysis, found that in a moderate stress 20 per cent of the senior PTCs will see a downgrade with 3.3 per cent of them going below IND A(SO) level. However, in the severe stress 53.3 per cent of the senior PTCs will see a downgrade with 3.3 per cent of them going below IND A(SO) level,” the agency said, though it said a severe stress situation was unlikely. 

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