Delinquencies could become a big reason to worry for auto lenders

Mumbai: Delinquencies could go up sharply for lenders to automobile buyers, especially in the commercial vehicles segment as the transport business reels from over-capacity and wafer-thin margins, according to analysts at research and ratings firms ICRA.

In March this year, the share of loans with payments pending for over 90 days past the due date (DPD) was highest since 2014 at 3.5 per cent of the industry’s retail portfolio, ICRA said in a presentation. Subsequently, retail as well as wholesale financing to the automobile industry was under pressure as lenders get more cautious.

We expect a sharp spike in delinquencies September onwards as the loan moratorium ends.

-ICRA

Delinquencies could go up to at least 6-8 per cent of the lenders’ retail portfolios in the commercial vehicles segment, he said. There were a lot of enquiries by transport operators to surrender their vehicles to the lenders.

Subsequently, repossession of vehicles will go up too.

“There is healthy demand for commercial vehicles in the second-hand market,” Dewan said. “Prices of second-hand vehicles have held up due to increase in the price of new vehicles.”

The prices of commercial vehicles have gone up by 10-15 per cent since March this year after vehicles became BS-VI emission norms compliant. This has led to an increased preference for used vehicles, especially amongst smaller operators with fleet sizes between 2-5 trucks.

Last month, a report by Indian Foundation of Transport Research and Training (IFTRT) suggested that between 45,000-50,000 heavy trucks could be repossessed as transporters default on loan repayment. However, many transporters have claimed the estimate to be exaggerated since.

Delinquencies will be higher for non-banking financial companies (NBFCs) than banks as the latter were able to access more prime customers, said Ashish Modani, vice president at ICRA.