Delinquency in LAP & CV loans rises on GST, falling property prices
Mumbai: Implementation of the goods and services tax (GST) and falling property prices continue to drag loan against property (LAP) and commercial vehicle loans segments, leading to higher delinquencies, says a report.
The weighted average 30-days-past-due (dpd) delinquency rose 160 basis points year-on-year to 4.07 per cent in February, indicating that institutions are yet to align their strategy in respect of the LAP segment, India Ratings said.
"The recently originated collateral-backed loans to the micro, small and medium enterprises' LAP loans have continued to surge on all delinquency indices following a drop in property prices and GST implementation," the report said.
Around 30 per cent of the rating agency's rated LAP portfolio is concentrated in the NCR region which has high levels of unsold inventories as well as a lower market value of the property against the loan provided. This is likely to result in sluggish recoveries from non-performing assets. The weighted average 90+dpd delinquency of NCR region is 2.36 per cent, 130 basis points higher than the median 90+dpd delinquency observed LAP loan portfolio across all states, the report said.
Early delinquency index (EDI) for commercial vehicle (CV) loans measured by weighted average 30+ dpd, rose to 7.89 per cent in February 2018 from 6.87 per cent in February 2017.
"This was mainly due to demonetisation, GST implementation, migration to BS-IV standard of vehicles and tightening norms of overloading of vehicles," the report said.
These factors have affected used CV loan borrowers more than new CV loans, owing to their weaker credit profile.
The rating agency believes rising fuel prices with no commensurate rise in freight rates will shrink the operating margins of CV loan operators by 7-10 per cent.