Demonetisation impact on auto loans

According to a Fitch report, demonetisation has led to problems in repayment of auto loans. Borrowers of such loans, the report mentions, have been the most affected. Demonetisation is said to have a detrimental effect on the income and cash flows of commercial vehicle operators. This could continue to feed through into repayments spanning across the next few months. Fitch sources claim that the company 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. The possibility of collections falling further in early 2017 is there, the report states. It could take at least another two-to-three months for collections to return to normal. Cash shortage post demonetisation seems to have affected used vehicle transactions. Over new vehicle buyers, the profiles of used vehicle buyers is often weak. 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.