Jan stimulus fails to rev up CV sales

NBFCs complain of lack of demand, cheaper credit access.

The central government’s second stimulus package aimed at reviving demand for heavy commercial vehicles (CVs) has failed to produce the desired results. The package was announced more than four months earlier.

Non-banking finance companies (NBFCs) were promised lines of credit, especially for the CV sector, through an arrangement with leading state-owned banks. They say they have struggled to gain from the package.

A senior executive of the Society of Indian Automobile Manufacturers (Siam), the apex representative body of the auto sector, stated that although the announcement of the stimulus package for the CV segment was made in January, the government has failed to implement the plan.

“The situation relating to finance of commercial vehicles hasn’t changed much. About 90 per cent of NBFCs in the country are small or medium-sized. Many such NBFCs are operating without adequate liquidity even today,” said the Siam executive.

To address liquidity concerns, which had badly impacted sales of CVs by the third quarter of the last financial year, the Congress-led UPA government had announced some measures in January, including an accelerated depreciation scheme and finance packages for NBFCs.

Although pent-up demand in the third quarter of the last financial year has resulted in improvement in sales since this January (December sales had fallen to 4,800 units), most CV manufacturers haven’t seen any significant spurt in demand.

Ashok Leyland’s Chief Financial Officer K Sridharan said, “Finance has only improved for larger NBFCs. However, most of the smaller NBFCs have failed to gain from the stimulus package. The smaller companies are finding it very difficult to source funds from banks.”

In India, NBFCs finance half the funding for CVs. Most banks are avoiding expanding their CV portfolio, due to rising cases of defaults. The rate of interest on CV funding is generally higher than that on passenger car finance.

Shriram Transport Finance, India’s biggest non-banking lender to the CV industry, has complained of lack of demand for CVs, which has led to a static rate of disbursal of vehicle loans.

R Sridhar, its managing director, said, “Funding has resumed from banks and we have enough liquidity at the moment. But now the problem is demand. Demand for CVs is still not going up, despite various fiscal measures taken by the government.”

Heavily impacted by the slump in the heavy trucks segment, Tata Motors, India’s largest CV manufacturer, also believes the key for revival of demand is a check on interest rates. Ravi Pisharody, president (commercial vehicles), Tata Motors, said, “The quantum of liquidity is not an issue with NBFCs; what is one is the rate at which it is made available. Interest rates are still in the high double-digits.”