New Delhi: The spur in fuel prices could strain India’s commercial vehicle operators and lead to a rise in auto-loan defaults, warned Fitch Ratings on Friday.
However, it said that the upbeat economic outlook suggests operators may find it easier to pass increased costs on to customers than during previous fuel-price spikes.
Delhi diesel prices averaged Rs 67.4 per litre in June, which was 26 per cent higher than a year earlier and up by more than 50 per cent on January 2016. “Upward pressure has stemmed from the recovery in global oil prices and depreciation in the Indian rupee, which has fallen by almost 7 per cent against the US dollar since the start of the year,” said the rating agency.
“Our baseline assumption is that global oil prices will remain high over the rest of 2018, while further rupee depreciation is a risk amid US monetary tightening. India is also facing US pressure to reduce its oil imports from Iran, which could further stoke Indian fuel prices,” said Fitch.
It said that freight rates have so far not kept pace with fuel-price increases, rising by less than 15 per cent since January 2016.
“This is causing stress for commercial-vehicle operators, for whom fuel accounts for a significant proportion of overall costs. Commercial vehicle loans make up almost all of the pools in our Indian auto asset-back-security portfolios,” said Fitch.
It said that most borrowers in these pools are small operators that depend directly on their vehicles for income, and some could find it difficult to make repayments if their margins continue to be squeezed.
The last fuel-price increase of comparable size was from mid-2012 to mid-2014, when prices rose by just over 40per cent.
This led to 90 plus days past due auto loan delinquencies jumping to around two to three times of pre-2012 levels for the majority of originators, making it the most stressful period for auto loans in the last 10 years, it said.
