Vehicle loan collections returned to normal in February 2017, following the disruptions spurred by the demonetisation of high-value currency notes in November 2016, according to Fitch Ratings.
“Average collections, as a percentage of investor payouts, were higher in February 2017 than October 2016 and February 2016 by 350 basis points (bp) and 60 bp respectively, reflecting a return to normalcy for the pools and underlying borrowers,” Fitch said in a report.
The ratings agency also noted that demonetisation had had a positive effect by shifting cash collections to cheque and electronic forms. “If sustained, the lower cash collections would likely result in a reduction in operating costs for servicers and a drop in temporary delinquencies, which is prevalent for commercial vehicle loans in India,” Fitch added.
According to the report, the increase in collections in February 2017 includes a partial recovery of overdue payments.
“The agency maintains the view that the negative impact is temporary and that it may take an average of another two to three months for a full recovery of the overdue amounts by servicers.”
The biggest turnaround was seen among used vehicle loan borrowers. “Used vehicle owners typically have more cash dealings, making it harder for them to manage a cash shortage compared with new vehicle owners during the demonetisation period. The rise in collections is likely due to lenders stepping up their servicing efforts,” Fitch said.
