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Informist, Friday, Dec. 13, 2024

MUMBAI – Fitch Ratings has maintained its 'neutral' outlook on Indian auto loan asset-backed securities. The ratings agency

on Friday said it expects the performance of such securities to be supported by steady domestic activity despite the forecasted slowdown in economic growth in 2025 and increased risks from global uncertainties and geopolitical conflicts. Auto asset-backed securities are structured finance securities that are collateralised by automobile loans or leases, such as those to borrowers with good and poor credit standing.

Fitch Ratings expects India's GDP to grow by 6.4% in 2024-25 (Apr-Mar) and by 6.5% in FY26, lower than the 8.2% growth in FY24. However, India's economic growth remains strong compared to its peers, it said. Fitch Ratings expects policy continuity in areas such as infrastructure, digitalisation, and ease of doing business measures, even as the government aims for fiscal consolidation. Public infrastructure capital expenditure will remain supportive of the economy and the improved health of bank and corporate balance sheets in recent years should also pave the way for a positive investment cycle and faster capital spending, Fitch Ratings said in a press release.

Fitch Ratings has seen an increase in tractor loans in its rated asset-backed securities transactions in recent years, raising the direct exposure of its portfolio to the agricultural sector, it said. The above normal south-west monsoon rains and a robust summer crop will support the agricultural sector. Better monsoon rains also limit inflationary risks from high food prices and increase rural purchasing power, Fitch Ratings said.

There are signs of stress in the unsecured lending sector due to over-leveraged borrowers and excessive growth even amid the Reserve Bank of India's efforts to slow down their growth. Fitch Ratings expects the stress to be contained within the unsecured sectors and does not expect it to affect the rated portfolio as they are secured by income-earning assets, such as commercial vehicle loans. 

The weighted-average 90 plus days past due ratio of Fitch Ratings-rated Indian rupee-denominated asset-backed securities transactions was 1.7% as of October. "Fitch expects delinquencies to remain largely stable in 2025," it said.

Major risks to asset performance would come from ongoing geopolitical tensions and volatility in crude oil price, given the cyclical nature of the assets, Fitch Ratings said. The performance of the assets may deteriorate materially if India's economic slowdown accelerates beyond the ratings agency's forecast or due to a rapid rise in fuel prices following a geopolitical event. While this is not the base case, it requires close monitoring, Fitch Ratings said. Fitch Ratings has a stable outlook on all of its rated Indian asset-backed securities transactions, it said.  End

Reported by Steffy Maria Paul

Edited by Ashish Shirke

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