Assets, mortgage-backed securities will be stable in 2017: Moody's

Global credit rating agency Moody's Investors Service and its Indian affiliate ICRA Ltd. on Thursday said the performance of commercial vehicle (CV) loans backing asset-based securities (ABS) and the residential mortgage-backed securities (RMBS) will be stable in 2017.

"Delinquency rates for CV loans backing ABS transactions should increase in the short term, owing to the country's demonetisation," said Dipanshu Rustagi, a Moody's Analyst.

"Nevertheless, CV loan delinquencies should fall back to around 2016 levels over the course of 2017, owing to India's robust economic growth and low oil prices."

Moody's expects oil prices to remain low in 2017. Moody's forecast Brent crude oil price of $45 a barrel in 2017, with a price band of $40-$60.

Low oil prices are positive for the performance of CV loans, because fuel accounts for 40-50 per cent of the costs of CV operators.

"On the home loans, arrears for mortgages backing Indian RMBS should remain low throughout 2017, supported by lower interest rates, and the fact that most of the homes were purchased by owner-occupiers," said Vibhor Mittal, an ICRA Vice President.

Home loans in India have an adequate collateral cover, with initial loan-to-value ratios of around 60-80 per cent.

Moreover, in most cases, the underlying property is occupied by the borrower, a credit positive. The eventual loss to the lenders -- post liquidation of the collateral — should therefore stay low.

In addition, ICRA explains that factors like favourable demographics -- in particular, a young working population and the rapid nuclearisation of families — strong latent housing demand, and the government's accommodative policy will continue to provide impetus to the housing sector.

ICRA points out that entities operating in the affordable housing segment — catering to borrowers with marginal repayment capacity and showing a greater reliance on cash collections — could witness an uptick in early delinquencies.

On the other hand, the prime housing loan segment, dominated by salaried borrowers, have not been impacted much by demonetisation.