MUMBAI: The stress in banking sector will spread to structured finances this year, and asset-backed securities of commercial vehicles and construction equipment will be among the worst hit, Fitch has said.
The rating agency has, however, maintained a stable outlook for structured finance transactions despite the expected rise in delinquencies in some asset classes.
Delinquencies are expected to rise in commercial vehicle (CV) loan transactions because of high financing costs, a slowdown in industrial activity and stressed margins of CV loan borrowers due to the rising fuel costs.
The Reserve Bank of India has raised its repo rate frequently in the past two years - to 8.50% in December 2011 from 5% in March 2009 and 5.75% in September 2010.
Fitch's analysis shows a rise in interest rates slows industrial activity with a lag of nine to 12 months.
"The current level of interest rates is expected to have a moderating effect on industrial activity for the next nine to 18 months, in the absence of a substantial reversal in interest rate policy," the report said.
The rise in freight rates has not kept pace with the hike in diesel prices over the past three years.
This has put pressure on the operating margins of CV operators. The slowdown in economic activity, coupled with shrinking operating margins, is expected to lead to deterioration in performance of less seasoned CV loans.
Loan delinquencies in commercial equipment could increase due to a probable slowdown in mining and infrastructure activities on account of constraints on the banking system and regulatory uncertainty.
Construction loans could see a rise in delinquencies if funding constraints affect existing projects, leading to slower project execution.
"Lack of new opportunities in mining and infrastructure sectors - due to issues of clearances or fund constraints - may result in CE owners struggling to redeploy their assets. This could also lead to an increase in delinquencies,'' said the report.
indiatimes.com
The rating agency has, however, maintained a stable outlook for structured finance transactions despite the expected rise in delinquencies in some asset classes.
Delinquencies are expected to rise in commercial vehicle (CV) loan transactions because of high financing costs, a slowdown in industrial activity and stressed margins of CV loan borrowers due to the rising fuel costs.
The Reserve Bank of India has raised its repo rate frequently in the past two years - to 8.50% in December 2011 from 5% in March 2009 and 5.75% in September 2010.
Fitch's analysis shows a rise in interest rates slows industrial activity with a lag of nine to 12 months.
"The current level of interest rates is expected to have a moderating effect on industrial activity for the next nine to 18 months, in the absence of a substantial reversal in interest rate policy," the report said.
The rise in freight rates has not kept pace with the hike in diesel prices over the past three years.
This has put pressure on the operating margins of CV operators. The slowdown in economic activity, coupled with shrinking operating margins, is expected to lead to deterioration in performance of less seasoned CV loans.
Loan delinquencies in commercial equipment could increase due to a probable slowdown in mining and infrastructure activities on account of constraints on the banking system and regulatory uncertainty.
Construction loans could see a rise in delinquencies if funding constraints affect existing projects, leading to slower project execution.
"Lack of new opportunities in mining and infrastructure sectors - due to issues of clearances or fund constraints - may result in CE owners struggling to redeploy their assets. This could also lead to an increase in delinquencies,'' said the report.
indiatimes.com
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