Govt banks extend Rs 5k-cr to CV financing companies

Six public sector banks, including State Bank of India and Punjab National Bank, have provided a refinance facility of Rs 5,000 crore to non-banking finance companies (NBFCs) for financing the purchase of commercial vehicles (CVs).

They are likely to provide a similar facility of Rs 1,000 crore over the next few weeks.

The refinance facility is expected to meet the fund requirements of NBFCs for the next four to five months and should help boost the sales of commercial vehicles, whose demand has been hit by the economic slowdown and the high cost of finance.

In December 2008, CV sales declined 50 per cent, with Delhi-based Eicher Motors witnessing its sales plummet by 70 per cent.

According to official estimates, between November 7, 2008, and January 16, 2009, there was a 5.5 per cent dip in credit flow to the transport sector, including automobiles and commercial vehicles.

There are, however, some signs of a recovery in auto sales in January, which manufacturers attribute to easier finance and heavy discounts on offer.

Since this refinance facility benefits only large and better-rated NBFCs, Finance Secretary Arun Ramanathan today held another round of meetings with the banks to work out an assistance of around Rs 1,000 crore for the smaller NBFCs, said sources privy to the discussions.

The bankers have assured an adequate credit flow at affordable interest rates, they added.

During the meeting with public sector bank chiefs today, stand-in Finance Minister Pranab Mukherjee discussed the reasons for the low deployment of credit to specific sectors, including transport, despite recent measures taken by RBI as well as the government to ease liquidity, improve flow of credit to specific sectors and to stimulate economic activity.

“The banks have given funds to NBFCs for lending to CVs,” said a finance ministry official. This facility was announced in the second economic stimulus package on January 2, but details were worked out by the finance ministry later with the six banks and representatives of NBFCs.

On their part, executives of NBFCs said that after the global credit crisis intensified in September, the cost of funds rose to 14-15 per cent during the subsequent two months, making financing unviable.

“There were takers, but the chances of defaults were very high as servicing a loan carrying 17-17.5 per cent interest rate was difficult. So, we almost stopped lending,” said the head of an NBFC.

While the cost of funds has declined now, lending is still slow as a large number of vehicles are off the roads due to the economic slowdown, said the executive.