Big financiers back out, leaving truck manufacturers in the lurch

Big financiers back out, leaving truck manufacturers in the lurch
Comment E-mail Print Share
First Published: Tue, May 29 2007. 01 00 AM IST

Slowing down: Almost all trucks sold in India, barring those bought by the government and government organizations, are financed.
Slowing down: Almost all trucks sold in India, barring those bought by the government and government organizations, are financed.
Updated: Tue, May 29 2007. 01 00 AM IST
Major truck financiers withdrew from the market in the first three months of this year making it difficult for truck buyers to obtain finance, said three people associated with the commercial vehicles industry. If other truck financiers slow down their lending or withdraw too, it could affect sales in 2007-08.
Almost all trucks sold in India, barring those bought by the government and government organizations, are financed. Between January and March this year, truck makers sold 140,843 trucks, an increase of 25% over the year-ago period. In April, they sold 30,836 trucks, compared with 28,967 in April 2006.
In 2006-07, truck makers sold a total of 467,882 trucks in India, according to industry data. This marks an increase of 33% over the 351,041 they did in 2005-06. Since 2002-03, when 190,682 trucks were sold, truck sales have increased rapidly, thanks to the booming economy and a Supreme Court order banning the overloading of trucks.
Slowing down: Almost all trucks sold in India, barring those bought by the government and government organizations, are financed.
At a recent annual analysis report of Tata Motors Ltd, the country’s largest truck maker, Praveen Kadle, executive director, finance, said: “The current problem is the availability of finance. Many of the big players (financiers), especially in the last two months of the last financial year, suddenly withdrew from the market.”
Senior executives at Sundaram Finance Ltd and Shriram Transport Finance Co. Ltd, two large non-banking finance companies (NBFCs) active in the truck finance business, confirmed that large financiers had withdrawn. “In February and March this year, some people withdrew (from the market),” said T.T. Srinivasaraghavan, MD, Sundaram Finance, part of the Chennai-based TVS Group. “It could have affected the sales.”
R. Sridhar, MD, Shriram Transport Finance, said banks faced with increased provisioning norms and rising interest rate had “slowed down” their disbursals.
“There were some liquidity problems in the market in March and the cost of borrowing increased,” said N.R. Narayanan, head of car and commercial vehicle loans at ICICI Bank Ltd. “As a consequence, financiers revised their terms and conditions and consumers went into a shell.”
The Reserve Bank of India recently increased provisioning norms for loans to specific sectors such as real estate. This means banks need more capital than they did in the past as a cushion against loans. Banks have a share of between 60% and 65% of the truck-financing market, said Sridhar, with NBFCs accounting for the rest.
To overcome this problem, Tata Motors plans to strengthen its financing arm, Tata Motor Finance. This arm finances 32% of the vehicles sold by Tata Motors. Ashok Leyland Ltd, India’s second-largest truck maker, does not have a financing arm. Asked whether NBFCs would benefit with banks slowing down or withdrawing from the market, Srinivasaraghavan said there could be a marginal gain. Sridhar said his company would continue to focus on catering to existing customers (used-vehicle buyers) who want to upgrade to new vehicles.
Ravi Krishnan in New Delhi contributed to this story.
Comment E-mail Print Share
First Published: Tue, May 29 2007. 01 00 AM IST
More Topics: Money Matters | Personal Finance |