Lenders tighten credit to truck operators as defaults rise

Trouble is getting deeper for the commercial vehicle sector as operators are finding it difficult to access credit in the backdrop of rising bad loans and poor business conditions.

Market players said banks and non-bank financial companies (NBFCs) are undertaking rigorous scrutiny of their repayment capability or have completely choked lending to the sector.

This is because transporters, especially smaller ones are deferring repayments.

“Earlier the repayment used to come in 30-45 days. But now that has increased to 90 days,” said a banker.

Some of the banks and NBFCs have already started restricting funding to small-time transporters or are adopting stringent measures to avoid further delinquencies.

“The funding now largely depends on the background of the party.

This was not the case earlier. Things are getting stringent for the past 2-3 months as the default are on rise,” said another banker.

Also, transporters are deferring purchases of new vehicles despite heavy discounts as the existing fleet is lying unutilised. CV sales degrew almost 45-50% in the last two years that impacted all players including Tata Motors and Ashok Leyland. 

“In the current environment, financiers are getting more cautious and are analysing the profile of a customer far more closely,” said a Tata Motors spokersperson, the biggest CV maker.

In such situations, lenders are shutting doors on first-time buyers as they do not have any credit history.

“We are more worried about the load availability and viability of the business. We have reduced the loan-to-value ratio and are asking customers to bring in a higher margin,” said Umesh Revankar, MD, Shriram Transport Finance.

He said lower EMIs on lesser loan amount would help the borrower to be disciplined on repayment.

India Ratings said sluggish freight demand and shrinking industrial production have impacted the profitability and debt servicing capacity of CV operators.

“The 90+ days past due (dpd) delinquencies of CV loans could increase in the next quarter,” said Neeta Laud, Arvind Rana and Jatin Nanaware, analysts at India Ratings in their report.

Pressures are likely to continue. Prasad Koparkar, senior director at Crisil, said, “On one hand, they are not making money because of diesel prices are going up, finance cost is going up and freight is not there. We think the CV segment will not recover at least in the next 3-4 quarters.”