Differential impact of demonetisation across ABS transactions: Ind-Ra

Mumbai, Jan 23 (IANS) Credit ratings agency India Ratings and Research (Ind-Ra) on Monday said it has observed differential impact of demonetisation across asset-backed securities (ABS) transactions.

According to the agency's report -- Indian ABS Escape Demonetisation Stress Tests with Bruises -- while the impact of demonetisation in the commercial vehicle (CV) and construction equipment (CE) loans has been marginal, it was more telling on loans backed by rural borrowers, such as tractor and microfinance loans.

"Ind-Ra has observed that long distance vehicles (heavy commercial vehicles and medium and heavy commercial vehicles) have been affected more than those operating in short distances (passenger vehicles and light commercial vehicles)," the credit ratings
agency said in a report.

"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."

The agency noted that ABS transactions backed by tractor loans have witnessed highest movement of delinquent loans, with a sharp increase seen in non-current loans by close to 10 per cent November 2016.

"High dependence on cash, lower ATM density, lower internet penetration and limited alternate payment options have had bearing on the income level of borrowers in the rural geographies," the report elaborated.

"Microfinance loans have seen the sharpest drop in collections as this sector is very sensitive to idiosyncratic stresses such as demonetisation owing to weak borrower profile and high dependence on cash because of concentration in rural and semi-urban geographies."

However, the agency pointed out that microfinance loans have also been impacted due to other factors as well like political interference and local issues, and not all drop in collections are on account of demonetisation.