Truck finance to recover as industrial activity revives: Report
Truck finance, which was in doldrums due to a mining ban and eco slowdown, is showing signs of revival, thanks to a revision in freight rates and drop in prices.
A report by India Ratings expects the revival in industrial activity to reflect in higher utilisation of commercial vehicles from second half of the fiscal year. A boost in corporate capital expenditure, coupled with infrastructure projects cleared by the Cabinet Committee on Investments in the past few months, will spur demand.
“We expect the truck finance business to revive from the second half of this year with a pick-up in industrial growth and corporate capex investments, leading to higher utilisation of existing trucks, and later, demand for new financing,” said Ehsan Syed, director finance, India Ratings.
The commercial vehicle segment had contributed to the rise in delinquencies for banks and non-banking finance companies during the first nine months of the financial year due to a slowdown in the economy. Most non-banking finance companies had a cautious outlook on the sector and had stopped writing new loans.
“The resale value of trucks is going up because freight rates are increasing, and so we see an uptick in demand for new and used trucks,” said Umesh Revankar, MD and CEO, Shriram Transport Finance. Shriram Transport is the largest truck financing company in the country.
With weak operating margins, borrowers were delaying their equated monthly instalments. NBFCs started accepting part payments by giving them time to overcome the weak business climate. “We have a cautious outlook on truck financing and would like to wait for another six months before we start looking at the sector,” said Ramesh Iyer, MD and CEO, Mahindra Finance. “The resale value has fallen, and with new trucks available at a discount, people prefer buying them.”
Non-performing loans accretions have more or less stabilised on the back of higher economic growth. “The additional accretion on commercial vehicle portfolio has largely stabilised,” said Aditya Puri, MD, HDFC Bank, during a recent press meet. The rating company expects industrial growth of 4.1 per cent in FY15 from an estimated 1.7 per cent last fiscal.
“It’s a sentiment-driven business. There’s a marginal uptick in commercial vehicle demand where fleet owners are looking at replacement for existing fleets,’’ said SV Parthasarathy, head consumer finance, IndusInd Bank. “Loan collection has improved. We expect demand to pick up once the election process is complete and a new government is in place.”