Global rating agency, Moody’s Investor Services in its latest report has said that the Indian government’s decision to remove a high denomination currency notes from circulation in November 2016 has negatively impacted the performance of Indian auto asset backed securities (ABS) in the short term, leading to a 1.3 percent decline in collections for November and December 2016.
The ratings agency noted that demonetisation has disrupted the recovery observed in the commercial vehicle (CV) loan segment for the past two years. It also expects ABS delinquencies and collections to return during 2017 to levels prior to demonetisation, as the economic slowdown triggered by notes ban wanes, oil prices remain around current levels and positive policy initiatives in Budget take hold to support earnings of CV operators.
The report further said that in such an environment, it expects the performance of the 15 Indian auto ABS transactions that Moody’s rate to continue to be weaker than was the case prior to demonetisation until at least the end of March 2017, owing to the temporary drag on consumption and investment triggered by the policy announced on November 8, 2016. However, the deterioration in performance has been limited to early stage delinquencies and supports Moody’s expectations of a short lived slippage in performance and proactive delinquency management by servicers, rather than as a precursor of permanent losses.