Rising oil prices could strain India's commercial vehicle operators and lead to a rise in auto-loan delinquencies, Fitch Ratings said in a note on July 5.

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Arvind Rana and Dan Martin of Fitch Ratings wrote, "Freight rates have so far not kept pace with fuel-price increases, rising by less than 15 percent 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 Indian auto asset-back-security (ABS) portfolios.

Most commercial vehicle borrowers are small operators that depend directly on their trucks for income, and some could find it difficult to make repayments if their margins continue to be squeezed, the duo said.

Diesel prices in Delhi averaged Rs 67.4 per litre in June, which was 26% higher than a year earlier and up by more than 50% 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% against the US dollar since the start of the year. "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," they said.

Rana and Martin said, "The last fuel-price increase of comparable size was from mid-2012 to mid-2014, when prices rose by just over 40%. It led to 90+ days past due auto loan delinquencies jumping to around 2x-3x of pre-2012 levels for the majority of originators, making it the most stressful period for Indian auto loans in the last 10 years."

Fitch, however, believes that India's current robust economic environment should help by supporting freight demand and making it easier for commercial-vehicle operators to pass through increased costs to customers. It expects the economy to continue picking up over the next two years, with GDP forecast to grow by 7.4 percent in fiscal year ending March 2019 and 7.5% in FY20, up from 6.7% in FY18.

"Economic conditions were more challenging over 2012-2014, with GDP growth averaging 6.4% during the period, compared with 8.5% in the previous three years," the report said.

First Published:Jul 6, 2018 9:32 AM IST