Restricted vehicle movement affecting CV loan collections

Most major banks and non-banking finance companies (NBFCs) have reported collection efficiencies of over 90% for the September quarter. However, the commercial vehicle (CV) books of financiers continue to lag behind their overall collection numbers as the movement of some categories of vehicles remains restricted. Even the pick-up in collections seen so far could fail to sustain beyond the short-term, analysts said, as they could have come on the back of pent-up demand and liquidity accumulated during the moratorium. Luxury buses, small commercial vehicles, school bus operators and cab aggregators are some of the segments where collections are still under pressure, lenders said.

IndusInd Bank, a major player in the CV market, said that its overall collection efficiency in the vehicles business was 94.3% for September, as against its normal collection efficiency which hovers in the high nineties. Sumant Kathpalia, managing director and CEO, IndusInd Bank, said, “Collection efficiency was lower than the average in small commercial vehicles and two-wheelers…SCV, which is the small commercial vehicles, are the most impacted segments from Covid and are slowly getting back on track. In two wheelers, we had accessibility and collection force availability issue, which are getting sorted.”

The taxi aggregator segment, the school bus segment, heavy commercial goods carriers, trailers, container movers and vehicles attached to hotels and tourism centres are still some way away from normalised levels of repayments.
Ramesh Iyer, vice chairman and managing director, Mahindra & Mahindra Financial Services, said that these particular segments are clearly under pressure and may remain so for a few more months. School bus operations would start only in the next academic year. The aggregator-driven vehicles have started earning some revenues with the opening up of airports and some offices, though they are nowhere near their pre-pandemic levels. Tourist vehicles are being redeployed for alternate use wherever possible and therefore, there is a pressure on their revenues.

“It could take another two quarters before we can say that they are back to some kind of normalcy,” Iyer said, adding, “those are the segments which have not been able to service their loans during this period and probably these are the consumers who may come up  for restructuring.”

IndusInd Bank and Shriram Transport Finance also said that borrowers in the passenger transportation segment, which is yet to recover, could be candidates for restructuring.  While much of the management commentary suggests they are optimistic about a recovery in the next few months, analysts are less sanguine. In a note dated November 24, analysts at S&P Global wrote that collection rates, which improved sharply in the second quarter, may wane. The trend was aided by the pickup in economic activity since lockdowns ended and, in many cases, by the financial savings of the borrowers. “Given that overall economic activity levels remain soft, savings could deplete fast, potentially hurting future collections,” the note said, pointing out that the CV segment, the fate of which is linked more closely to the economic activity, has yet to recover.

Some analysts have taken the view that the actual level of collections in categories like small enterprises and CVs may actually be lower than reported. In a recent note, Dolat Capital Market said, “Higher collections could also be driven by disbursements under the govt’s ECLGS (emergency credit line guarantee scheme) and savings led by six-month moratorium, implying that true collection efficiency for SME (small and medium enterprises), CV could be much lower than reported and that stress could get spilled over to FY22.”