CRISIL Ratings has said that there is a weakness emerging in the performance of retail assets for the first time in three years. Delinquencies in commercial vehicle (CV) loans are increasing, with monthly
collection ratio (MCR) of CRISIL-rated CV pools dropping below 95 per cent for the first time since
2009. This decline in collection efficiency indicates that borrowers are increasingly delaying repayments; there is, therefore, a likelihood of increase in non-performing assets (NPAs) over the next few quarters. Despite this weakness in CV pools, the performance of other retail asset classes, such as housing loans, car loans, and microfinance loans, remains stable.

The median MCR of CRISIL-rated securitised non-mortgage retail pools declined to 94.4 per cent for
the quarter ended December 31, 2012, from 96.2 per cent for the corresponding quarter of the previous year.

The performance of heavy CV loans is the weakest, because of a sluggish economy,industry overcapacity, and increasing input costs. Says Pawan Agrawal, Senior Director, CRISIL Ratings, "A portfolio analysis of the leading non-banking financial companies (NBFCs) that lend to the CV segment reveals that delinquency in near-term buckets is rising. The 90+ days past- due levels, an indicator of loans not repaid for more than 90 days, has increased by about 100 basis points over the three quarters ended December 2012." The sub-par collection levels may continue over the next few quarters, reflecting the adverse impact of reduced freight demand on CV owners and their inability to pass on increases in fuel and labour costs. This has substantially eroded the earnings and debt-servicing capability of transport operators. The delinquencies are, therefore, likely to gradually deepen and move beyond 180 days, leading to a potential rise in NPA levels.

However, the credit protection available to investors in CRISIL-rated CV pools continues to remain
healthy as the impact of lower collections is offset by structural credit enhancement in these pools,
enabling them to withstand the pressure of rising shortfalls.

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