Lenders step up repossession of commercial vehicles on payment defaults

Data collated by the Delhi-based IFTRT shows that close to 50,000 commercial vehicles have been seized and are parked in the stockyards

Stockyards in logistics and transport hubs in various parts of the country are overflowing with repossessed commercial vehicles, as the rising incidence of defaults is forcing financiers to step up the seizure of these vehicles.

The data collated by the Delhi-based Indian Foundation of Transport Research and Training (IFTRT) from financiers and transporters shows that close to 50,000 commercial vehicles have been seized and are parked in the stockyards. Sales of commercial vehicles stood at 1.007 million units in 2018-19, according to the Society of Indian Automobile Manufacturers. 

“There are about 150 repossession yards across the country and most of them are overflowing with commercial vehicles. These vehicles are lying with financiers,” said S P Singh, senior fellow at IFTRT. 

Unlike the two previous slowdowns in 2008-2009 and 2012-13, the worrying aspect of the repossession of vehicles this time is that 40 per cent of them are less than a year old, added Singh.

Poor economic growth and a slowdown in consumption have impacted freight availability and prevented transporters from increasing freight rates. 

The idling fleet, together with high operating costs, including those of fuel, tyre prices and toll charges, are making the transport business unviable, with the result that many owners are unable to make their loan repayments on time. Fearing default, many of them have also started voluntarily surrendering their vehicles.

Nishant Singh has failed to pay three equated monthly instalments on each of the 10 trucks he owns. He has been getting calls from his bank. They want him to either pay off his dues or be prepared to have the trucks seized.

“I am seriously considering surrendering the vehicles as the business has gone down in a big way, and I see no signs of revival,” said Singh, who is based in Navi Mumbai and has been in the transport business since 1988. But surrendering the vehicles is not easy either, as the bank wants him to first clear his dues.

Singh has even tried to sell his year-old vehicles, but to no avail. “There is no buyer and I’m getting half the price of what I paid just a year ago,” said Singh.

Balmalkit Singh, former president of All India Motor Transport Congress, said that both small and large transporters have been hit by the slowdown. “Given the current scenario, I don’t see any light at the end of the tunnel,” he said.

Top officials at various non-banking financial companies said that while it is common practice to seize vehicles when an owner fails to meet the repayment obligation, it’s always the last resort, as it does not benefit anyone, especially not in a dull market.

The decision to repossess a vehicle “is not a mechanical one,” said T T Srinivasaraghavan, managing director (MD) at Sundaram Finance, one of the largest financiers of new commercial vehicles. Though delinquency in repayment has gone up, every case does not lead to repossession, he added.
 

For example, in some cases, the lender may decide to go for repossession if the default is for 70 days, but it is felt that there is no intent to pay; in some others, even with a delay of 120 days, the vehicle may still not be seized, Srinivasaraghavan said. He admitted that at Sundaram Finance, there has been a rise in the number of repossessions in the recent past. “But it is in 100s and not in 1,000s,” he said. Sundaram’s current gross non-performing assets are a little over 2 per cent.

Not everyone is of the view that the number of repossessions has gone up. Umesh Revankar, MD and chief executive at Shriram Transport Finance, the largest financier of used commercial vehicles, said, “Repossession is a regular exercise. It happens even during the best of times. There is no increased activity, according to my understanding.”

India’s industrial production contracted 4.3 per cent in September, the weakest performance in seven years, due to output decline in manufacturing, mining, and electricity sectors.

“It’s a tough time and I don’t see any magic happening. I see this continuing till September 2020. Road transporters’ economy will improve only if the overall economy picks up,” said Sundaram’s Srinivasaraghavan..