Losses in auto asset-backed loans low, trend to remain in mid-term: Moody's

Moody's Investors Service on Saturday said losses in auto asset-backed loans are currently low on an average and the trend would continue in the medium term.

Moody's also found that loans originated in states of southern India exhibit lower loss rates than loans from other states, with 40 per cent of total CV loans backing Indian auto ABS from southern states.

Its analysis is based on the performance of 70 Indian auto ABS backed by commercial vehicle (CV) loans originated between 2009 and 2016 by eight different financiers, and with a total initial pool principal amount of Rs 11,500 crore.

A majority of auto asset-back securities (ABS) in India are backed by CV loans.

"Our analysis shows that Indian auto ABS loss rates are low overall, averaging 1 per cent, and will likely remain low over the near to medium term," Moody's Assistant VP and Analyst Dipanshu Rustagi said.

In a statement Moody's said auto ABS losses vary at different times and between loans with different characteristics, driven by a number of key loss drivers.

Economic conditions represent a key loss driver, and the performance of CV loans is highly correlated to it, Moody's said.

The US-based rating agency also found that higher interest rate loans are associated with higher loss rates, and that lenders price auto loans according to their assessment of the riskiness of borrowers.

"Loans that are at least a year old show lower loss rates when compared with less seasoned loans.

And, loans with higher loan-to-value ratios typically demonstrate higher loss rates," it added.

Loans with shorter original tenures incur lower losses, because borrowers who can afford to repay loans over a short period are typically of higher quality, Moody's said.