Vehicle financers face risk with falling fleet utilisation: Ind-Ra

Mumbai (Maharashtra) [India], May 26 : India Ratings and Research (Ind-Ra) has said the second Covid wave will have a material impact on vehicle financers' asset quality as borrowers are grappling with reduced capacity utilisation and increased operating costs.
This is due to rising fuel cost which will reduce their ability to service debt.
Ind-Ra said the industry has faced multiple challenges starting from demonetisation, goods and services tax rollout, increased system capacity through the axle norms revision to these ongoing pandemic waves.
The impact of the first Covid wave was cushioned with multiple measures like regulatory moratorium, loan restructuring, additional funding through the emergency credit line guarantee scheme along with a sharp pent-up demand recovery which raised optimism about faster-than-expected normalisation.
However, the outcome may be different during the second wave due to widescale impact, including rural areas and pent-up demand being absorbed already.
Ind-Ra estimated the collection efficiency for the first fortnight of May could be lower by 5 to 7 per cent on top of a similar decline in April over March.
Lenders will be impacted in the medium term due to restricted mobility and moderating borrowers' cash flows. Collections have become difficult due to the surge in infected cases and would impact asset quality in 1HFY22.
However, lenders have shored up their capital and liquidity buffers to navigate the challenging environment, said Ind-Ra.

The strengthened capitalisation and sizeable on-balance sheet liquidity and holding of margin due to a funding cost improvement in the last one year will provide some buffer to absorb incremental stress because of the second wave.