Economic pickup will support borrowers but Covid risks remain high: Moody's

Indian auto loan ABS delinquency rates have improved alongside the easing of coronavirus restrictions over recent months, but remain elevated. Delinquency rates will stabilise at high levels as coronavirus restrictions ease, citing that Indian auto ABS delinquency and collection rates improved in June and July as economic activity picked up after coronavirus restrictions eased.

Over the next three to six months, auto loan delinquency rates will stay elevated, though broadly stable from current levels, Moody's Investors Service said in its comment on auto loans.

Indian auto loan asset-backed securities (ABS) delinquency rates have improved alongside the easing of coronavirus restrictions over recent months, but remain elevated.

Delinquency rates will stabilise at high levels as coronavirus restrictions ease, Moody's said, citing that Indian auto ABS delinquency and collection rates improved in June and July as economic activity picked up after coronavirus restrictions eased.

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"While economic conditions have improved, this year's virus outbreak has eroded borrowers' financial reserves. Over the next three to six months, we expect delinquency rates will stay elevated at around current levels as many borrowers continue to deal with the pandemic's economic after effects," the ratings agency said.

"The Indian auto ABS we rate benefit from non-amortizing cash reserves and substantial excess spread," Moody's said, adding that these features mitigate risks from elevated delinquency rates for Indian auto ABS, because they provide deals with liquidity and buffers against losses.

Auto ABS performance improved because the pickup in economic activity over recent months raised demand and rates for goods transportation. Improving conditions for goods transportation are positive for the Indian auto ABS sector, because deals mostly securitise loans to commercial vehicle operators who earn income by moving freight.

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