Uptick in commercial vehicle loans unlikely before October: Bankers

“Despite meeting all documentation requirements and getting a sanction from the president level officer of a private sector bank, my loan application is still on hold after five months. My business is stalled since I don’t have money to repair my older vehicles,” said aggrieved C&F transport operator Ashok Nawany.

This probably sums up the dilemma faced by transport operators, whose business has run into headwinds due to slowdown in the economy.

Many such transport operators are going through the squeeze of lower cash flows owing to the sluggish demand for commercial vehicles.

Low utilisation levels of trucks, higher operating costs due to costlier diesel, and flat or low freight rates have pushed up delinquencies of truck owners. This has made banks wary of lending to the commercial vehicles segment.

Although the stress in the segment seems to be bottoming out, the revival of demand for fresh loans in the sector will take two more quarters, according to bankers.

Romesh Sobti, MD and CEO, IndusInd Bank, said, “It (pick up in commercial vehicle loan offtake) may take another quarter or so to start showing in our monthly disbursements…and we are expecting reversal in the next two quarters.”

“With the ban on mining being lifted, we see increase in commercial vehicle sales and therefore, increase in financing…But don’t expect a sudden uptick.”

The disbursements were flat in commercial vehicle financing, while non-performing assets have increased in the fourth quarter for IndusInd Bank one of the leading players in lending to the commercial vehicles segment.

The bank’s commercial vehicle loan portfolio declined to 17 per cent of its total advances as on March end, 2014 from 22 per cent a year ago. However, small commercial and two-wheeler lending has increased marginally.

Commercial vehicle sales growth has been sluggish in the past two years as the overall commercial vehicle segment registered de-growth of 24 per cent in April 2014 as compared to the same month last year. Medium and heavy commercial vehicle sales growth declined 17.09 per cent and light commercial vehicles also dropped by 27.37 per cent year-on-year, according to SIAM data.

Kotak Mahindra Bank too has reduced its commercial vehicle and construction equipment (CV&CE) portfolio by 30 per cent to ₹5,441 crore as on March 31, 2014 from ₹7,805 crore as on March end last year.

Uday Kotak, Vice-Chairman and Managing Director of Kotak Mahindra Bank, said at the bank’s results conference, “While the demand in the CV&CE segment has not picked up, we see some upside in the cycle…the sector may have bottomed out but the stress has not run away. The industry expects the CV&CE segment to recover by October.”

Similarly, Umesh Revankar, MD & CEO of Shriram Transport, also expects recovery in CVs only in the second half of FY15 after the new government reviews policies on mining, infrastructure and other sectors, which will spur economic activity.

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