Ind-Ra revises outlook on tractor loans to negative for FY17

Poor monsoons and slow growth in minimum support prices over the last two years will continue to weigh on the performance of tractor loans, an Ind-Ra report said here.
"We have revised the outlook on tractor loans to negative for FY17 from stable-to-negative for FY16.
"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," said the report by India Ratings and Research (Ind-Ra).
Compared to 3 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 indicates that delinquencies in tractor loans of recent vintages will stay close to the worst levels seen recently, it said.
However, the improved industrial activity resulting in improved freight demand is expected to help mitigate the overcapacity built in the commercial vehicle (CV) sector.

Ind-Ra has revised the outlook on commercial vehicle loans to stable for 2016-17 from stable-to-negative for FY16.
However, a significant increase in freight rate is unlikely owing to the low entry barriers in this industry, it said.
The delinquency levels for both light and heavy CV loans originated before 2014 are likely to taper down in the next 12 months.

Also, the peak delinquencies in 2014 and 2015 vintage loans are likely to remain within the peaks observed for 2013 vintage loans, signalling the recovery underway in the sector.
With a recovery in industrial output, the agency expects new CV loans to again outperform old CV loans -- a trend seen during 2006-2010 but which got reversed between 2011-2015 driven by lower utilisation levels and higher debt service.
This exposed new CV loans to higher delinquencies than used CV loans.
Economic growth at levels much lower than Ind-Ra's expectation could impact the outlook of all the asset classes negatively.
A significant drop in the industrial growth rate as measured by gross value added below 7.6 per cent along with a sharp increase in CV sales resulting in overcapacity, and a sharp rise in fuel prices leading to margin erosion of CV owners may lead to the revision in the CV loan asset class outlook to negative, it said.