COVID second wave to weaken asset quality of vehicle financiers: Report

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The worsening second wave of the COVID-19 pandemic may result in a 5-7 percent increase in non-performing loans of vehicle financiers in the country, according to industry experts.

COVID second wave to weaken asset quality of vehicle financiers: Report

The worsening second wave of the COVID-19 pandemic may result in a 5-7 percent increase in non-performing loans of vehicle financiers in the country, according to industry experts.

The incomes of fleet operators have taken a severe hit as strict lockdowns in various states have cramped economic activity. It has added to an increase in operating costs, newspaper Mint reported quoting experts.

With the second wave severely impacting activity in manufacturing and infrastructure, fleet owners of commercial vehicles see lower capacity utilization of vehicles, affecting their ability to repay loans.

“There are emerging trends of extension of loan tenors by vehicle financiers to reduce servicing burden for borrowers. All vehicle segments would be impacted by the pandemic as it gets widespread, hindering business activity and thus affecting borrowers’ cash flows. Demand recovery would not be similar to the first wave as pent-up demand has been absorbed, and people would be cautious for subsequent waves," Credit rating agency India Ratings said in a recent report.

Naveen Gupta, secretary-general, All India Motor Transport Congress, a grouping of truck fleet owners, said 65-70 percent of the capacity of commercial vehicle fleet owners is currently idle due to lack of demand while the continued increase in diesel prices has swelled operating costs, the newspaper report added.

Gupta added that freight rates have fallen by almost 25 percent due to the oversupply of vehicles, and they are not in a position to increase rates in line with high diesel prices, according to the Mint report.

However, some vehicle financiers say that this year is comparatively better than 2020 when collections plunged to 10-15 percent due to the stringent lockdown.

Mahindra and Mahindra Financial Services Ltd vice-chairman and managing director Ramesh Iyer said that the collections in April were around 70 percent since there was business in the first half; and in May, it’s down to 60 percent since the farm sector has done well because of a good harvest, the report mentioned.

Sales of commercial vehicles began to recover in the December quarter as economic activity gradually started showing signs of a rebound from the COVID-related disruptions. In the fourth quarter, most vehicle manufacturers reported growth in sales from the year earlier, though on a low base.

Gupta said that none of the banks is accepting offers for a moratorium. They are asking industry players to restructure loans, which will impact the credit score. He added that they have written to the finance minister for a moratorium on payments till August.

Commercial vehicles makers, however, remain hopeful demand will return once the situation comes to a normal.

According to India Ratings and Research, these lenders' collection efficiency for the first fortnight of May 2021 could be lower by 5-7 percent on top of a similar decline in April over March 2021.

Market Movers

CompanyPriceChange%Gain
Adani Ports694.35 47.45 7.33
Bajaj Auto4,167.10 113.20 2.79
HUL2,482.90 65.20 2.70
Bharti Airtel538.75 10.10 1.91
Grasim1,480.75 22.55 1.55
CompanyPriceChange%Gain
HUL2,480.75 63.85 2.64
Bajaj Auto4,164.95 105.95 2.61
Bharti Airtel538.90 10.20 1.93
Bajaj Finserv11,998.00 179.95 1.52
IndusInd Bank994.90 10.65 1.08
CompanyPriceChange%Gain
Adani Ports694.35 47.45
Bajaj Auto4,167.10 113.20
HUL2,482.90 65.20
Bharti Airtel538.75 10.10
Grasim1,480.75 22.55
CompanyPriceChange%Gain
HUL2,480.75 63.85
Bajaj Auto4,164.95 105.95
Bharti Airtel538.90 10.20
Bajaj Finserv11,998.00 179.95
IndusInd Bank994.90 10.65

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Euro-Rupee87.8770-0.4200-0.48
Pound-Rupee102.2970-0.9290-0.90
Rupee-100 Yen0.6699-0.0019-0.29