Construction equipment loans see improvement

While there has been a marginal deterioration in the performance of commercial vehicle loans and micro-finance loans over the one-year period ending July 2017, the quality of construction equipment loans continued to improve due to a rise in mining and infrastructure activity supported by higher spending on infrastructure over the last two fiscals.

The tractor loans also witnessed an improvement in asset quality following an uptick in crop output aided by strong monsoons.

According to Ind-Ra, there was a decline in collection efficiency and

A 21% YoY increase in tractor sales volume in H1FY18 indicates an uptick in rural demand. A strong 2017 southwest monsoon is likely to further improve the agriculture GVA index and support loan performance — IND-RA

increase in delinquency in commercial vehicle loans due to stubborn freight rate and slow industrial growth.

Freight rate remained largely flat, with an average rise of about 2 per cent on a YoY basis from July 2016 to July 2017.

Moreover, the pickup in industrial activity, measured by IIP, largely remained flat, with an increase of 0.94 per cent YoY in July 2017 compared with a rise of 4.47 per cent YoY in July 2016.

“A stubborn freight rate amid low industrial demand could stall further improvement in asset quality. Recent structural changes in the economy, such as the implementation of the GST, and the recovery of the economy from the headwinds of demonetisation remain uncertain factors that influence the performance of CV loans,” it said.

However it added that an increase in asset usage has led to an improvement in construction equipment loan while tractor loans also registered a recovery post demonetisation.