Demonetization effected small Vehicle loans

Mumbai January 28: The government had announced to demonetise old high-value currency notes in November last year.

Demonetisation has significantly impacted the repayment capacity of small auto loan borrowers as their income has been adversely hit, says a report.

"Demonetisation appears to have had a negative impact on auto loan repayments with small auto loan borrowers have been affected the most," Fitch Rating said in a report on Friday.

The report said borrowers were initially permitted to use demonetised notes for loan repayments, which helped in managing collections in November.

However, demonetization has disrupted economic activities, particularly in the informal sector, and has hit the borrowers’ income, the report said.

"It is possible that collections will fall further in early 2017, and we believe it could take at least another two to three months before for collections to return to normal," the rating agency said in the report.

The cash shortage has affected used-vehicle operators which generally have weaker credit profiles - more than the new-vehicle borrowers.

Fitch said its rated auto loan asset backed security transactions remain resilient to a drop in collections. Only four transactions made any utilisation of credit enhancement in November, the report said.