Fitch Ratings expects arrears of Indian auto-loan securitisations to rise by 1.25x-1.50x from pre-pandemic levels in 2021, due to the lagged effect of macroeconomic stress. The rating agency adds that the rise in arrears on the books of originators is likely to be more severe than that in securitised pools.
In its research note, Fitch said, "We expect the operating environment for the commercial-vehicle sector, which comprises a major part of our rated portfolio, to improve from the lows experienced during the pandemic-related lockdown with the gradual resumption of economic activity."
However, Fitch also added, "we expect the segment to remain under stress compared with pre-pandemic levels until at least 1H21."
Having a negative sector outlook on auto-loans, Fitch said, "borrowers have benefited from an option to delay payments for six months, with the payment holidays ending 31 August 2020. We have seen improved collection rates since April across all rated transactions, although some borrowers may have built up liquidity during the payment holiday and used this liquidity to make their September and October 2020 repayments."
"We expect such borrowers to experience difficulty in making repayments over the next few months due to the stressed macroeconomic environment, lifting arrears in 1H21 with a lag effect," Fitch added.
Furthermore, Fitch highlights that delinquencies are likely to stay elevated through to 2H21. Arrear positions were frozen at end-February 2020 and only resumed ageing once the payment holidays ended. At the September 2020 collection month, 90+ days past due arrears for our rated portfolio averaged 1.4% of the closing pool principal, similar to the 2019 level of 1.3%. However, the current arrear position does not truly reflect the credit quality of underlying portfolios due to the paid holidays and freeze on arrear positions.
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