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Demonetisation Effect — Auto Loan Repayments Facing Issues
Demonetisation has affected auto loan repayment, and the worst affected were small time loan borrowers.
The auto loan sector is facing repayment issues due to the demonetisation effect. The borrowers of such loans have been badly affected, according to Fitch, a rating agency.
Borrowers of small time loans have been affected the most, and has affected the income and cash flow of commercial vehicle operators that could continue into repayments, a study says.
The study said, "We do not expect ratings to be affected. The collections (as a percentage of investor payment obligations) of Fitch-rated Asset Backed Securities transactions dropped by an average of around 1 percent in November 2016 (the first month of demonetisation), to 101.5 percent from 102.5 percent in October."
According to Fitch, in November, people were able to repay loans using the discontinued currencies, which helped in managing collections.
The report said, "It is possible that collections will fall further in early 2017, and we believe it could take at least another 2-3 months for collections to return to normal."
The used vehicle operators, who generally have a weak credit profile compared to new vehicle buyers, were affected badly.
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