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Here is something for truck operators to cheer: They can get easy access to bank finance for buying second-hand vehicles.
Banks and non-banking finance companies, which are giving loans to buy new commercial vehicles, are looking to finance purchase of used commercial vehicles.
For lenders, this segment is relatively untapped and, therefore, offers huge potential to lend. Currently it is dominated by unorganised players, with Shriram Transport Finance being the only organised player in this segment.
The used CVs segment offers higher yields, as it is a riskier asset class when compared to new CVs. Typically, for a new CV loan, loan rates are between 11.5-13.5 per cent, while for used CVs they range from 16 to 20 per cent.
Another advantage for the new entrants could be their strong presence in the rural and semi-urban markets, which is typically a big market for second hand CV sales.
IndusInd Bank is looking to step up lending in the used commercial vehicle space and double its portfolio to about Rs 2,000 crore from the current Rs 1,000 crore approximately, said Mr S V Parthasarathy, Head Consumer Finance, IndusInd Bank. The bank had a CV portfolio of Rs 5,704 crore, including Rs 1,000 crore of used CV lending, as on March 31.
“In the used CV segment it is the risk expertise which is the differentiator. According to our estimates about 15 lakh persons would be eligible for finance in this segment. We can use our own network to offer better value to customers,” Mr Parthasarathy said.
A report by Standard Chartered Bank said, “Spreads on used vehicles are 300 bps higher than new vehicles and the market is underpenetrated. There is only one meaningful financier in the used CV segment – Shriram Transport.”
Asset financing company Magma Fincorp also plans to increase the share of the higher yielding products, like used commercial vehicles, tractor and SME loans, to 25 per cent from the current 19 per cent, said Mr V Lakshmi Narasimhan, Chief Financial Officer. “This will help to protect the margins,” Mr Narasimhan said. For the 2010-11 fiscal, the share of used commercial vehicles was 4 per cent in Magma's lending portfolio.
Few players
Auto financing company Mahindra Finance, which is a new entrant in this segment, considers used CVs a good business proposition since there are very few players. Currently, half of the company's loan portfolio is on account of sale of Mahindra Group's passenger cars, commercial vehicles and two wheelers.
Mr Ramesh Iyer, MD, Mahindra Financial Services, said: “Part of the focus in the current fiscal is to parallely start second-hand financing of commercial vehicles. There is a lot of potential and the yields are high – up to 22 to 24 per cent. On new vehicles, the yield is 12 per cent.”
According to Mr Pawan Agrawal, Director, CRISIL Ratings, NBFCs are looking at segments such as used CVs, among others, in order to diversify their asset portfolio and get into high yielding assets. Used CVs should also allow them to maintain their asset quality since it is a secured asset class and also has an established performance record.
“The cost of resources for NBFCs is increasing and they are finding it difficult to pass it on fully to their existing customers. Used CVs being a higher yielding asset class, can potentially allow NBFCs to offset pressure on their margins,” Mr Agrawal said.
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