Low ticket commercial vehicle (CV) loans show higher than portfolio average delinquency rates, indicates a report launched by India-Ratings. Along with low ticket commercial vehicle loans, even loans taken at a higher interest rate carry chances of defaulting.
At a high loan internal rate of return (IRR) of above 25%, average delinquency rates for new CV loans can be at least 60% higher than the average rates seen across the portfolio.
The report was launched after analysing rated Asset backed Securities (ABS) portfolio which comprised of over two lakh loan applications amounting to Rs. 60 billion. These were loans disbursed between the period 2008 and 2011.
“Originators tend to limit LTV ratios at high interest rates.
This helps in reducing losses in the events of default, the likelihood of which is 60% higher at such rates than portfolio average defaults,” says Arvind Rana, analyst, India Ratings Structured Finance Group. The rise in delinquency rates at lower vehicle values indicates weak credit profile of borrowers. The report further elaborated on how states such as Andhra Pradesh and Tamil Nadu show lower delinquency rates than the portfolio average. On the other hand, states such as Maharashtra, Madhya Pradesh and Uttar Pradesh show higher than portfolio average delinquency rates.