Fuel price hike will lead to auto loan defaults says Fitch

Last Updated: Fri, Jul 06, 2018 21:16 hrs
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New Delhi: The rise in Petrol and Diesel has not only had the average Joe irritated and fuming, but if it continues, it could lead to rising cases of commercial vehicle owners defaulting on their loans. The

Fitch Ratings on Friday conceded that a continued rise in petrol and diesel prices could impact commercial vehicle operators in the country, leading to auto loan defaults.

Analysts from Fitch explained that freight rates have so far been out of synch with fuel price increases, rising by less than 15% since January 2016. This is already causing a stress for many commercial vehicle operators, for whom fuel is a major cost.

"Most borrowers in the commercial vehicle segment 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 agency said.

In Delhi, diesel prices averaged at Rs 67.4 per litre in June, 26% higher than a year earlier and 50% than the January 2016 level. The last fuel price rise of comparable size was during mid-2012 to mid-2014, when it rose by over 40%.

This led to 90+ 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.

Upward pressure in fuel prices has stemmed from the recovery in global oil prices and depreciation in the rupee, which has fallen by almost 7% against the dollar since the start of the year, the rating agency said in a report.

Fitch expects global oil prices to remain high over the rest of 2018, while further rupee depreciation is a risk amid US monetary tightening. The country is also facing US pressure to reduce its oil imports from Iran, which it feels could further stoke domestic fuel prices.

On the brighter side, the rating agency said robust economic environment should support freight demand and make it easier for commercial vehicle operators to pass through increased costs to customers.

GDP is expected to rise up to 7.4% in FY19 and 7.5 per cent in FY20, up from 6.7 per cent in FY18. But, global monetary tightening and trade protectionism are likely to impact this growth. With Agency Inputs

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