10 Dec 2013
Edition: Page 14
The inevitable fallout of the long decline in commercial vehicle (CV)
sales is the rise in delinquencies in loans to this sector. Prolonged
sluggishness in the economy along with high interest rates has led to
defaults of CV loans.
Obviously, this puts at risk the nonbanking financial companies
(NBFCs), which have a reasonably high exposure to this segment. A
report by India Ratings and Research Pvt. Ltd says that for the
quarter ended September, the weighted average of 90-plus days’ dues
rose by 23% from the immediate preceding quarter to 3% of the loans.
An earlier report by Equifax Credit highlighting the 30-day
outstanding loan delinquencies were up by about 18% in the first half
of fiscal year 2013. The data is backed by the corporate results of
leaders in CV lending. Shriram Transport Finance Co.
Ltd reported a margin decline, albeit a small one, compared with the
June quarter, mainly due to high cost of borrowing, growth moderation
in assets under management and inching up non-performing assets.
NBFCs in this segment like Cholamandalam Investment and Finance Co.
Ltd and Sundaram Finance Ltd have reduced the loan amount given as a
percentage to value of the asset and tightened eligibility norms.
But risks on existing assets continue to rise.
A report from Antique Stock Broking Ltd points out some worrisome
trends in the industry.
Utilization of trucks has fallen as number of trips per month has
come down to six from 10, with no return trip.
This has strained cash flows of transporters.
Delay in payment of loan instalments has spread from heavy trucks to
even intermediate and light CVs.
The deteriorating fundamentals of finance firms are due to all-round
sluggishness in the economy, ranging from agricultural product
movements to industrials, mining and infrastructure.
More worrisome is the recently noticed trend of rise in early
delinquency rate against a scenario of stable repayment of loans at
least in the first two-three years.
The handful of listed firms has shown stress on cash flows in the
last several quarters, which is unlikely to improve immediately, in
spite of improved collection procedures and lending norms.
Meanwhile, year-till-date sales volume of trucks is down 27% compared
with a year ago for Ashok Leyland Ltd and Tata Motors Ltd.
A rise in truck rentals, which had been falling for many months, will
A 3-4% rise in truck rentals seen in the last two months, however,
could be due to arrival of the agricultural harvest.
This is too early to signal a revival.