'Industrial slump to put additional stress on CV loans'

India Ratings report says if diesel prices continue to rise, the commercial vehicle operators are likely to see their operating margins shrink further

The continuing slowdown in the industrial sector along with weak private consumption and rising diesel prices are likely to increase the stress in the commercial vehicle (CV) loan segment through at least the first half of the next financial, says an India Ratings report.

India Ratings said in its report on Monday, "Delays in industrial recovery and subdued private consumption expenditure will continue to put pressure on the freight demand of medium, heavy and light commercial vehicles till at least the first half of FY15."It also said that if diesel prices continue to rise, the CV operators are likely to see their operating margins shrinking further.

Last week, the government had hiked diesel prices by 50 paise per litre, excluding local sales taxes. However, despite this the agency revised the asset performance outlook on CV loans to negative from stable with a negative bias and a stable outlook for those CV loans with asset-backed securities (ABS). It said barring some recent transactions which have seen a sharp rise in delinquency, most of the rated CV loans and ABS are expected to continue exhibiting stable performance.

The agency also maintained a stable to negative outlook for commercial equipment (CE) and a stable outlook on ABS transactions backed by CE loans. It said that CE loan performance has seen some deterioration resulting from a sustained contraction of the mining industry and slow growth rate in other key infrastructure sectors. Mining and infrastructure are the key sectors that drive capacity utilisation of construction equipment.

"While Cabinet Committee on Investments' continued efforts to clear the logjams in infrastructure projects could push infrastructure growth, mining growth rate is less likely to recover significantly in the next two quarters."

The report maintained a stable outlook both on asset performance and ABS transactions backed by tractor loans as the farm borrowers continue to be aided by a stable rise in minimum support prices, favourable rains and rural development initiatives.