Fitch Ratings: Higher fuel costs could test resilience of India ABS Transactions

22 Apr 2022 , 11:47 AM

 Fitch Ratings believes that our rated Indian auto-loan ABS transactions will prove resilient to fuel costs at their current elevated levels. However, the greater the rise in fuel prices, the more of a challenge it will be for commercial vehicle operators to pass it on to their customers, and further large increases could have adverse effects on our rated transactions.

"Our rated transactions comprise commercial-usage auto (truck) loans and tractor loans that are repaid mainly from earnings from the vehicles. Increases in fuel prices have a direct impact on the business models of vehicle owners, with fuel costs representing around half of operating expenses for truck operators, for example," Fitch Ratings said in the report..

Oil prices have risen substantially in recent weeks, largely as a result of Russia’s invasion of Ukraine. As of March 2022, Fitch raised its forecast for average oil prices to USD100/bbl and USD80/bbl in 2022 and 2023, respectively, from USD70/bbl and USD60/bbl previously. India’s fuel prices, which are managed by the authorities, incorporate a base price that is intended to reflect the international cost of oil. Fuel prices were frozen between November 2021 and March 2022, and the excise duty on fuel was also cut in November 2021, by INR10/litre for diesel. These moves provided support to auto-loan performance, albeit without significant effects for our rated pools. However, since 22 March the cost of diesel has been raised by slightly more than 10%.

Fitch Ratings believes that our rated Indian auto-loan ABS transactions will prove resilient to fuel costs at their current elevated levels. However, the greater the rise in fuel prices, the more of a challenge it will be for commercial vehicle operators to pass it on to their customers, and further large increases could have adverse effects on our rated transactions.

Our rated transactions comprise commercial-usage auto (truck) loans and tractor loans that are repaid mainly from earnings from the vehicles. Increases in fuel prices have a direct impact on the business models of vehicle owners, with fuel costs representing around half of operating expenses for truck operators, for example.

Oil prices have risen substantially in recent weeks, largely as a result of Russia’s invasion of Ukraine. As of March 2022, Fitch raised its forecast for average oil prices to USD100/bbl and USD80/bbl in 2022 and 2023, respectively, from USD70/bbl and USD60/bbl previously. India’s fuel prices, which are managed by the authorities, incorporate a base price that is intended to reflect the international cost of oil. Fuel prices were frozen between November 2021 and March 2022, and the excise duty on fuel was also cut in November 2021, by INR10/litre for diesel. These moves provided support to auto-loan performance, albeit without significant effects for our rated pools. However, since 22 March the cost of diesel has been raised by slightly more than 10%.