Commercial Vehicle Lenders See Prolonged Stress Due To Covid, Fuel Prices

Commercial vehicle lenders, who were hoping to see a recovery in their portfolios just a few months ago, are now bracing for another round of stress as elevated fuel prices add to the woes of fleet operators.Lenders have seen lower collections and slower recovery from the segment in the April and June quarter, according to bankers and analysts. The impact of this could be felt by both banks, with exposure to this segment, and non-bank lenders who lend heavily to the transport sector.Overall, collection efficiency in the commercial vehicle loan segment has ranged between 60-75% over the course of the quarter, according to an estimate by Sanjay Kumar Agarwal, senior director at Care Ratings Ltd.The impact, according to Rakesh Kumar, analyst at brokerage firm Sytematix Shares, could be significant for lenders with a sizeable exposure to commercial vehicle financing. 'Among banks, HDFC Bank Ltd. and IndusInd Bank Ltd. could see some impact during the first and second quarter of fiscal 2022,' he said.While IndusInd Bank had a 13% share of its loan book linked to commercial vehicle financing as of March 31, 2021, HDFC Bank does not disclose the share of the individual lending segments.Among NBFCs, Shriram Transport Finance Company Ltd., Cholamandalam Investment and Finance Co. Ltd., Mahindra and Mahindra Financial Services Ltd., and Sundaram Finance Ltd. may see higher impact, said Siji Philip, senior research analyst at Axis Securities. 'Even as collections are slowly improving, the impact would be higher for non-banking financial companies than banks due to their higher exposure to the segment,' she said.Shriram Transport had a 93% share of its AUM in CV loans, Cholamandalam Finance had 30%, Mahindra Financial had 16%, and Sundaram Finance had 48% share. .Like many other segments, operators of trucks, buses and other commercial vehicles had seen business come to a near standstill last year after the Covid crisis hit. As the second wave of virus infections hit, the decision to avoid a nationwide lockdown was expected to help keep the movement of goods flowing. However, the increase the fuel prices meant that economics of the transport business weakened as operators were not able to pass on the higher fuel prices amid weak demand.As of July 19, retail diesel price in the national capital stood between Rs 89.91 a litre, while petrol prices were at Rs 101.58 in New Delhi, according to Bharat Petroleum Oil Corp. website. Petrol prices have risen 26% and diesel prices by 10% on July 19, compared to a year ago. “Commercial transportation has been hit by the diesel price hikes, and our previous experience also tells us that it usually takes a couple of quarters for people to manage to pass on these cost hikes to their customers,” said Jimmy Tata, head – credit and market risk at HDFC Bank on Saturday, while citing the segment as a source of non Covid related stress. .We expect in the current quarter, the July-Sep. quarter, a fair amount of that (fuel price hike) would get passed on and the quarter after that, particularly with the help of the festive season, I think people would manage to bring things back on an even keel by passing on these increased costs. But this is an aspect where we will need to look at the developments in that particular product.Jimmy Tata, Head – Credit And Market Risk, HDFC Bank.Between April and June, Shriram Transport Finance— a commercial vehicle lender, also saw its collections drop between 87-92%.After seeing a challenging period for at least 45 days, things started looking up since mid-June, and collections have been improving ever since. The impact of high fuel prices, coupled with the expectation of a heavy monsoon in July, may continue to impact business for commercial vehicle operators, said Umesh Revankar, vice chairman and managing director at Shriram Transport Finance. 'But from August , we expect collections to bounce back to pre-Covid level of 95-100%,” he said..Not many borrowers availed the restructuring window offered by the Reserve Bank of India to stressed individuals and small business borrowers. Many have opted for part-payments, but we expect full repayment of loan installments to start trickling down from August.Umesh Revankar, Vice Chairman and Managing Director, Shriram Transport Finance.Between April 1 and July 20, CV-focused bank and non-bank lenders under-performed benchmark indices Nifty Bank and Nifty 50. Mahindra Financial saw the steepest correction of nearly 25%, followed by Cholamandalam Finance that fell about 12%, Shriram Transport that corrected 5%. Broader indices — Nifty Bank and Nifty, rose nearly 2% and 5% respectively over this period..A revival is likely in the commercial vehicle segment over the next six months, subject to a benign third Covid wave, said Kumar of Systematix. “Presently, lenders would focus on giving some relaxation in terms of partial repayment or restructuring to their borrowers in the commercial vehicle segment,' he said.But the impact may linger for those commercial vehicle operators who are in the services and tourism segments, said Philip. “School and tour bus operators, and cab aggregators will continue to see deeper stress and longer impact as their businesses, unlike trucks and heavy commercial vehicles, has been completely shut during the pandemic, and the risk of a third wave could lead to further delays in pick-up” she said.The July-September quarter for vehicle financiers, therefore, is expected to remain moderate to muted, depending on how the third Covid wave pans out, Philip said.

Commercial Vehicle Lenders See Prolonged Stress Due To Covid, Fuel Prices

Rising fuel costs, coupled with the lingering impact of the Covid crisis, have meant a prolonged period of pain for CV lenders.

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