Commercial vehicle lenders bank on pick up in infra, mining sectors

Non-banking finance companies and banks active in the commercial vehicle (CV) segment are betting on improvement in mining activity and infrastructure projects to make up for any loss arising out of weak demand from the farm sector.

Rainfall has been about 34 per cent below normal till now. This is bound to have a telling impact on agriculture produce as the kharif sowing season has been delayed in several parts of the country.

Cautious on lending While some NBFCs remain hopeful of a pick-up in monsoon rains, majority of them are betting on a rise in mining activity over the next few months.

According to S. Viji, Chairman, Sundaram Finance, improvement in sales of CVs is still some time away. Medium and heavy CVs, the company’s core business, fell 25 per cent in 2013-14, while light CV sales declined 18 per cent.

“However, there appears to be few early signs that the prolonged and severe slump in the commercial vehicle industry could be bottoming out,” Viji said, at an AGM speech.

Pre-emptive steps taken Umesh Revankar, Shriram Transport Finance Company’s Managing Director and CEO, said only after July can one come to the conclusion if the rainfall has been adequate or not.

However, the company has taken certain pre-emptive measures already. For example, it has reduced the amount of loan it gives for purchase of CVs by as much as five per cent.

Even lenders such as HDFC Bank and Kotak Mahindra Bank see some more pain in the CV segment before things improve.

“The CV segment may still see some contraction. Though disbursements have increased, we will be cautious in lending right now,” said Paresh Sukthankar, Deputy Managing Director, HDFC Bank.

As for L&T Finance Holdings, lending to CV segment dropped to ₹27 crore for the first quarter this fiscal, from ₹167 crore, a year ago.

Repayment ability If monsoon doesn’t improve significantly in August and September, then water-intensive crops such as paddy might suffer. This could potentially hit the CV operators’ ability to repay loans.

It is in this backdrop that the CV financiers – both standalone NBFCs and banks – are looking with expectant eyes at the Government’s move to lift mining ban in certain sectors.

“We hope that things will start changing from the third quarter onwards if the mining and infrastructure segment shows some improvement,” Shriram Transport’s Revankar said.

Also, according to CV lenders, the delay in monsoon means that their on-field staff have to make more visits to the customer location to recover dues.

“Earlier, what we could recover with one visit takes about three visits now,” according to Revankar.

Improvement seen However, with the Government moving to fast-track stalled projects and lift curbs on mining, it is hoped that the situation of lenders will improve.

Romesh Sobti, IndusInd Bank CEO and Managing Director, said in a post-earnings conference call: “Stress has bottomed in the CV segment and we will see improvement in the third or the fourth quarter. We are now definite that CV demand will pick up from here as there is no surplus capacity as mining ban has also been lifted.”

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