New vehicle loans witness high defaults: ICRA
By Vaibhav Aggarwal
Dec 19, 2007
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New Delhi: Latest findings by an independent and professional Investment Information and Credit Rating Agency (ICRA) have revealed that the recently extended commercial vehicle loans have shown a greater tendency of defaults than older advances of similar nature.

The agency found that there has been a definite lowering of credit criteria and relaxation in lending norms as more and more borrowers are being brought into this rapidly growing segment. These factors seem to increase the defaults among new commercial vehicle loans.

According to ICRA the interest component of the new commercial vehicle loan, which is on the higher side has a little role in this rise in defaults because the tenure of such loans is around 3-4 years and the increased interest rates doesn't heavily affect the repayment capability of the borrower. The findings of the report indicate that delinquency levels typically peak at around 22 months post origination of the loan. ICRA paid special emphasis to factors such as maintenance of credit quality of the originator and performance of the overall portfolio of the originator during its survey.

The auto loan industry have been witnessing high delinquency rates with the defaults in two-wheeler loans jumping to a whopping 40%. The main reason for these defaults was the process of issuing loans on the basis of temporary registrations by sub-dealers. Little effort was made towards checking the credentials of borrowers and verifying his repayment capacity.

In a race to get the most number of borrowers, this negligence backfired with huge default rates. Similar scenario can be visualized in this findings of ICRA, as the report also points towards a 'lowering of credit criteria' and 'relaxation in lending norms' to gain more customers, eventually leading to a delinquency crisis.

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