Resurgence of Coronavirus to hurt commercial vehicle loans: Moody’s

India's coronavirus resurgence has delayed the country's economic recovery, which will hurt the performance of asset-backed securities backed by commercial vehicle loans, according to a report by Moody's Investors Service.

"Slowing economic activity in India due to the second wave will constrain commercial vehicle owners' capacity to pay auto loans. As a result, commercial vehicle loan delinquencies will increase in India and collection rates will remain below March levels over the next three to six months," says Dipanshu Rustagi, a Moody's Assistant Vice President and Analyst.

Sluggish economic activity will dampen demand for goods transportation and lower freight rates. This will reduce commercial vehicle operators' incomes, and therefore, their ability to repay auto loans, the agency said.

Furthermore, fuel costs are rising following a depreciation of the rupee and state and central fuel tax changes, which have hiked up commercial vehicle operators' costs and will further constrain their loan-repayment ability.

Cash reserves, excess spread and transaction structures will mitigate risks. The Indian asset backed securities that Moody's rates benefit from non-amortizing cash reserves and substantial excess spread, providing liquidity and buffers against losses. Most deals also have timely interest and ultimate principal structures, which provide additional protection against liquidity risks.