As slowdown hits commercial vehicle market, loan holders are not paying instalments
Move over public sector banks. Even the country's highly rated conglomerate Tata Group's non-banking financial arm, Tata Motors Finance Solution Ltd (TMFSL), a dedicated vehicle finance arm of Tata Motors Ltd, has raked over 70% gross NPAs (non-performing assets).
While gross NPA is the total number of bad loans, net NPA is the total bad assets minus the provision left aside. It means that net NPA will always be lower than gross NPA.
A score of first-time vehicle loan holders are not paying instalments as a long spell of slowdown hit the commercial vehicle market in the country.
Loan documents accessed by dna reveal that TMFSL's NPAs stand at a staggering Rs 2,977 crore (71.5%, to be precise, of its loan book) as on December 31, 2015
State Bank of India (SBI), the prime lender of TMFSL, had funded over 95%, even when the Tata firm did not register profits in the vehicle finance business.
SBI has lent Rs 2,500 crore so far, while HDFC has invested Rs 100 crore (nearly 4%). In its latest meeting, SBI's top officials have apparently decided to cut its funds in working capital and review the exit term loan of Rs 2,000 crore, sources said. SBI's lending in TMFSL has already come down to Rs 2,100 crore from Rs 2,500 crore, they said.
Bank sources disclosed that TMFSL is facing huge stress, but SBI still sees a rescuer in Tata Motors Ltd, which has pledged its Pune manufacturing facility as collateral. SBI told dna: "Credit facilities to TMFSL have been sanctioned after proper due diligence, within the approved policy of the bank and by the appropriate authority of the bank, after observing the laid- down process. Further, the bank's exposure is adequately secured and suitable risk mitigants are in place to protect the bank's interest".
TMFSL, however, pegs its gross NPAs at 59% as on December 31, 2015. A Tata spokesperson told dna that the increase in NPAs is "primarily on account of a stagnant and reducing book, as all disbursements under the manufacturer guaranteed business were stopped in October 2014.''
Given the continuing weakness in the economy and in order to prevent customers (substantially first-time users) from further hardships by losing their only source of livelihood, the company took select and conscious calls of offering alternative solutions to customers who were unable to pay their normal instalments in time, the spokesperson added.
SBI had relaxed the regulatory norms for TMFSL's overdues from 5% to 5.31%, thus deviating from the normal course.
The slowdown in Indian economy has hit owners of trucks and other commercial vehicles for the past six years. Freight demand has dipped, while additional costs, like toll and maintenance, have risen, thus affecting their repayment capacity.
Tata Motors possesses one-third market share of commercial vehicles and it mostly financed its vehicles through TMFS and TMFSL. TMFSL (earlier known as Rajasthan leasing Private Ltd) is promoted by Tata Motors Finance Ltd (TMFL).
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