Chennai, December 8

The lending ecosystem for commercial vehicles (CVs) is expected to be strengthened as volumes continue to rise, supported by improving macro factors, government thrust on infra spending and recovery in demand for replacements.

The demand for medium and heavy commercial vehicles has been led by an increase in fleet utilisation (75-80 per cent currently) due to strong demand from the cement, mining and steel segments, and a rise in freight income. Though demand from small fleet operators remained muted, partly due to non-availability of financing, it is expected to improve in the coming months.

Leading commercial vehicle makers Tata Motors, Ashok Leyland and VE Commercial Vehicles witnessed good growth across categories.

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“Though CV industry was facing headwinds in the recent past, the road ahead looks promising. CV industry is expected to witness strong growth driven by infrastructure push, e-commerce and rural market,” Girish Wagh, Executive Director, Tata Motors, said during a recent interaction.

The lending environment for CVs has been stabilising gradually. While the crisis in the non-banking financial companies (NBFC) sector and, later, the pandemic had impacted lending in FY2020 and H1 FY2021, respectively, the situation started to improve from H2 FY2021.

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“Our recent channel checks indicate that challenges such as lower loan-to-value, higher turnaround time for loans, higher rejection rates and interest rates have largely abated and the financing environment has turned more conducive. Nevertheless, this would be largely for bigger fleet operators and those with an established credit history,” said Shamsher Dewan, Group Head and Vice President-Corporate Sector Ratings, ICRA Ltd.

For smaller players and first-time buyers without a satisfactory credit history, financing challenges continue to a large extent. Especially so since high fuel prices are impacting the cash flows of operators who cannot pass it on as increased freight rates.

The vehicle finance industry is poised for a revival amid a pick-up in macroeconomic parameters. Underlying sales in the largest segment of CVs are likely to grow at 13-18 per cent, resulting in AUM growth of 8-10 per cent. NBFCs have strengthened their share in the used vehicle segment as a risk-adjusted return strategy, said a report by Nirmal Bang.

Auto-focused NBFCs have seen an increase in net worth (partially due to capital raise) and are operating at low leverage. Shriram Transport, Mahindra Finance and Cholamandalam have raised capital in the last two years and are well capitalised for growth, the report added.

A leading player in the CV lending segment, Shriram Transport has already indicated that it would end this fiscal with double-digit growth. Other leading lenders also witnessed continued improvement in collection efficiencies.

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