Fitch downgrades India's auto loan sector outlook on economic slowdown risks
Dec 13, 2022
New Delhi [India], December 13 : Fitch Ratings has revised the outlook on the Indian auto loan sector to "deteriorating" from "neutral", driven by the expectation of a slower domestic GDP growth amid a global economic slowdown. Elevated inflation and tighter monetary policy too also are likely to hurt demand in the sector, the rating agency said.
Economic conditions remain challenging for the underlying auto loan assets as they are mainly commercial-vehicle loans in nature. Those loans are mostly extended to small road transport operators, who tend to be more vulnerable to economic shocks, Fitch Ratings said in a statement on Tuesday.
"The worldwide economic slowdown is also likely to reduce demand for Indian exports. A slowdown in industrial activities could weigh on the performance of medium and heavy commercial vehicles, which are used mostly for long-haul transportation," the statement said.
High inflation, Fitch Ratings said, may increase the operating costs of vehicles and the cost of living, which may hurt operators' debt servicing capacity.
The global rating agency, however, believes tailwinds such as continued recovery in economic activity after the pandemic shock and the government's planned increase in infrastructure spending will help sustain and contain the deterioration in asset performance in auto loans.
Meanwhile, Fitch forecasts India's GDP to expand by 7.0 per cent in the financial year ending March 2023, before slowing to 6.2 per cent in the next financial year starting April 2023 as the worldwide slowdown weighs on the economy.
Nevertheless, it said India's economic growth remains strong relative to that of its global peers.
"India is expected to record one of the fastest growth rates among emerging markets in our Fitch20 coverage this year as the economy is shielded to some extent by its domestically focused nature," the statement said.
