A man walks past a diesel and petrol gas pump at a Bharat Petroleum Corp. gas station in Mumbai, India. (Photographer: Vivek Prakash/Bloomberg)  

Rising Fuel Prices May Lead To Default On Commercial Vehicle Loans: Fitch

Fitch Ratings today said continued rise in fuel prices could impact commercial vehicle operators in the country, leading to auto loan defaults.

In Delhi, diesel prices averaged at Rs 67.4 per litre in June, 26 percent higher than a year earlier and 50 percent than the January 2016 level.

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

It said freight rates have so far not kept pace with fuel price increases, rising by less than 15 percent since January 2016, which is causing stress for commercial vehicle operators, for whom fuel accounts for a significant proportion of overall costs.

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.
Fitch Ratings

The last fuel price rise of comparable size was from mid-2012 to mid-2014, when it rose by just over 40 percent.

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.

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

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On the bright 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.

It expects economy to continue picking up over the next two years, with GDP to grow by 7.4 percent in FY19 and 7.5 percent in FY20, up from 6.7 percent in FY18. In its second bi monthly monetary policy review in June, the Reserve Bank of India had estimated GDP growth at 7.4 percent as in the April policy.

It had projected GDP growth in the range of 7.5-7.6 percent in the first half of FY19, and 7.3-7.4 percent in the second half, with risks evenly balanced.

The rating agency, however, said global monetary tightening and trade protectionism are likely to impact the economic outlook.

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