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Truck repossessions soar as owners default

Truck repossessions soar as owners default
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First Published: Fri, Dec 26 2008. 12 01 AM IST

End of the road: Repossessed commercial vehicles parked at a farm in Nagli Dairy area of Najafgarh in Delhi. Mint
End of the road: Repossessed commercial vehicles parked at a farm in Nagli Dairy area of Najafgarh in Delhi. Mint
Updated: Fri, Dec 26 2008. 12 01 AM IST
India’s economic slowdown has started hitting truck owners, some of whom are defaulting on loans and surrendering vehicles, leaving financiers with hundreds of repossessed and idle trucks.
As movement of goods slows from a faltering economy, transporters aren’t in a hurry to reclaim their repossessed trucks, says Sudhir Khanna, executive vice-president, commercial vehicles division, Kotak Mahindra Bank Ltd, which has repossessed about 200 vehicles. About 90% of all commercial vehicles sold in India are bought with loans.
End of the road: Repossessed commercial vehicles parked at a farm in Nagli Dairy area of Najafgarh in Delhi. Mint
Finance firms and banks claim they aren’t too concerned yet as assets such as trucks are usually highly “liquid” and can typically be re-sold, says N.R. Narayanan, who heads the car and commercial vehicle loans division at ICICI Bank Ltd.
But some transporters say the situation is far worse than the financiers are willing to admit. Deepak Sachdeva, president of the Delhi Goods Transport Association, or DGTA, said that between April and December alone, close to 158,000 commercial vehicles were either surrendered or repossessed due to loan defaults.
“In the past four-five months, while freights have declined by 25-30%, operational costs have gone up by 15-20%,” said Malkit Singh Bal, president of the Mumbai Goods Transport Association.
“You have heard of farmers committing suicide, you will now hear of transporters doing the same!” claims Charan Singh Lohara, president of the All India Motor Transport Corporation.
Kotak’s Khanna admits his firm’s losses due to repossession have gone up by 15-20% over the last year, but insists the DGTA data overstates the problem.
This defaulting on trucks and continued softening of demand for transportation is a nightmare scenario for many truck firms, especially if the used-truck market balloons from all the repossessed trucks.
India’s industrial production fell 0.4% in October, the first decline in 15 years, and exports plunged 12%. Transporters catering to the steel, iron ore, cement, auto and mining industries have been hit the hardest on account of a slump in those sectors, said several financiers Mint spoke with.
Shyam Mani, managing director of Tata Motors Finance Ltd, or TMF, said loan defaults and repossessions have gone up in recent times and there is pressure on repayment, particularly for customers from the steel and mining sectors.
TMF is the financing arm of Tata Motors Ltd, the country’s biggest truck maker by market share, and provides loans for 35% of all its commercial vehicle sales.
While TMF declined to reveal the number of repossessed vehicles, business rivals said they have some 7,000 such trucks on their hands.
“We have close to 600,000 live contracts, hence there’s bound to be certain amount of repossessed assets,” says Mani.
By some industry estimates, ICICI Bank, which has been aggressively lending to transporters, could have some 3,000 repossessed trucks on its hands. ICICI Bank refused to put a number on its truck repossessions.
Shriram Transport Finance Co. Ltd, which said it financed 800,000 new trucks in 2008, has close to 8,000 vehicles in its repossession yard, said managing director S. Sridhar.
Ashok Khanna, executive vice-president, auto loans, HDFC Bank Ltd, which said it has an 18% share in the lorry finance market, said the number of vehicles repossessed by the firm has gone up by 1-1.5 percentage points on a month-to-month basis. “We repossessed 30 vehicles in October and 34 in November. Cumulatively, it has gone by 1.5% over the last year,” he said, adding that the bank currently has close to 90-95 repossessed vehicles.
Jasjit Sethi, chief executive of transporter TCI Supply Chain Solutions Ltd, said small operators have stopped buying new vehicles while larger, more organized players have also cut new buys by at least 15-20%. TCI, which typically adds 100-150 new vehicles a year, has reduced that number by 20%.
Meanwhile, the trucking industry itself—which accounts for 70% of freight movement in the country and provides employment, directly or otherwise, to some 20 million—sees some hard times ahead.
Parvinder Singh, who owns 85 trucks in Delhi-UP-MP Transport Ltd, said because there are more trucks than freight, his trucks have to wait for two-three days to load, compared with just a few hours before September. He attributes this to a fall in both exports and local consumption.
However, Sethi of TCI said transporters in the unorganized sector need to first put their business model in order.
“In our industry, in order to survive, we have to look at cash flow as much as profit. This is what most transporters fail to do,” he said, explaining that transporters tend to over-trade and rely heavily on credit to meet most operating costs, besides rotating money to repay loans, usually in equated monthly instalments. Thus, if business slows for even one month, things fall apart.
“They require support and on case-to-case basis, (and) depending on customer’s profile, we have been addressing their needs,” said TMF”s Mani about the transporters’ plight.
He added that the company is trying to maintain disbursement levels but loans have contracted by 10-15% over last year. Other financiers said the average reductions in loans across the industry ranged between 15% and 30%
Shriram Transport has also cut back on the number of loans, said Sridhar. “We have slowed down financing by at least 30% to Rs2,500 crore in the July to September quarter of the current year compared with last year,” he said.
shally.s@livemint.com
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First Published: Fri, Dec 26 2008. 12 01 AM IST
More Topics: Transporters | Steel | Iron ore | Cement | Auto |
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