Demonetisation appears to have hurt India's auto loan repayments badly as borrowers of such loans being the worst-hit, rating agency Fitch said in a report. Small auto loan borrowers have been affected the most. Demonetisation is likely to have had a detrimental effect on the income and cash flows of commercial vehicle operators, which could continue to feed through into repayments in the next few months, it said in a report.
"We do not expect ratings to be affected. The collections (as a percentage of investor payment obligations) of Fitch-rated Asset Backed Securities transactions dropped by an average of around 1 per cent in November 2016 (the first month of demonetisation), to 101.5 per cent from 102.5 per cent in October," it said.
Fitch has received December 2016 collection data for around 40 per cent of its rated transactions, which points to a further average drop of 60 basis points. Borrowers were initially permitted to use demonetised notes for loan repayments, which helped in managing collections in November, it said.
However, it said, demonetisation has disrupted economic activity -- particularly in the informal sector -- and is likely to have hit borrowers' incomes. "It is possible that collections will fall further in early 2017, and we believe it could take at least another 2-3 months for collections to return to normal," it said.
The cash shortage has affected used-vehicle operators -- which generally have weaker credit profiles -- more than the new-vehicle borrowers, it said, adding, pools backed predominantly by used-vehicle loans saw an average drop in collections of 130 basis points in November 2016. Those with a higher concentration of light and small commercial vehicles, which again have relatively weaker borrower credit profiles compared to medium and heavy vehicle owners, also dropped significantly by almost 200 basis points.