Bleak outlook for tractor loans

Even as monsoons are expected to be above normal this year, the tractor loan portfolio is yet to see recovery, say analysts. This is at a time when overall commercial vehicle (CV) loans have started showing signs of recovery, banking on improved industrial activity.

An India Ratings and Research analysis showed that the the improved industrial activity resulting in improved freight demand will help mitigate the over-capacity built in the CV industry, due to lacklustre industrial growth over the last few  years.

The agency also feels that the current level of improved margin, mainly on account of over 14 per cent reduction in average diesel price over the 12 months ended November 2015, would also aid the CV operators’ debt serviceability.

In contrast, the poor monsoons in 2014 and 2015 and slower growth in minimum support price over the last two years will continue to weigh on the performance of tractor loans. Compared to 3.1 per cent of the average peak 180+ days past due (dpd) delinquency observed in 2011 vintage loans, post 2011 vintage loans reached over 4 per cent of average 180+ dpd delinquency in just two years from issuance.

The agency’s projection of delinquencies in tractor loans of recent vintages indicates that the delinquencies will stay close to the worst levels seen recently.

On the other hand, the delinquency levels for both light and heavy CV loans originating before 2014 are likely to taper down in the next 12 months.With weighted average delinquency of 2013 vintage LCV and HCV loans coming down to nearly 4.5 per cent and 4 per cent of initial disbursed loan amounts, respectively, from the current value of nearly 7.5 per cent and 6.0 per cent in the next 12 months, the situation is likely to improve for CV loans as such.

The agricultural output, though recovered from the sharp fall in March 2015 as a result of 2014’s weak monsoon, has largely been subdued in the 12 months ended September 2015. The year-on-year growth in agriculture GDP stood at 2.18 per cent in Q2FY15 compared to 2.10 per cent in Q2FY14, India Ratings said.

The diversified usage of tractors in local transportation and other activities helped tractor loan borrowers to partly absorb the impact of weak agricultural activities. Nevertheless, the delinquency remains high with loans originated in the last two years showing little signs of improvement from the high level of delinquencies recorded in post 2011.