Tata Motors arm to offer credit for used trucks, construction gear
Tata Motors Finance is venturing into financing of used trucks and construction equipment as part of strategy to scale up its business
Mumbai: Tata Motors Finance, the dedicated vehicle finance arm of Tata Motors Ltd, is venturing into financing of used trucks and construction equipment as part of a strategy to scale up its business.
The financing arm has set up a new unit, Tata Motors Finance Solutions, which received the Reserve Bank of India (RBI) approval three-to-four weeks ago, to oversee the business.
“There’s a plan to get into the financing of used trucks and construction equipment on a small scale," Shyam Mani, managing director of Tata Motors Finance, said in a phone interview.
To begin with, unlike Shriram Transport Finance Co Ltd, the biggest financier of used trucks in the country, Tata Motors Finance Solutions will offer credit only on used vehicles it has in its possession through channels like exchange schemes or through re-possession from defaulters.
“We have found some success in the new business model. We have to now scale it up as we go along," said Mani.
The company, however, has no plans to extend loans for the purchase of used cars, which is a competitive segment in which several financiers are already in business.
“The idea is to first extend it across the country, get a first-hand experience and then take it to the next level," Mani said.
A long spell of slowing sales in the commercial vehicle market has made the going tough for finance firms, especially the ones owned by auto makers.
Even as sales of medium and heavy duty trucks, which are linked to the state of the economy, have seen a steady rise since July last year, sales of light commercial vehicles that include small trucks such as the Tata Ace have remained under pressure.
Owners of light commercial vehicles, in the absence of enough freight demand, have failed to service their loan, resulting in defaults. Financiers have in turn tightened lending, denting sales in a country where 90% of commercial vehicles that are sold are bought on credit.
In the nine months ended 31 December, Tata Motors Finance’s loss widened to ₹ 214 crore from ₹ 119.4 crore in the year-ago period and revenue fell 4.8% to ₹ 2,182 crore, according to an investor presentation on the company’s website.
Non-performing assets, or NPAs, at Tata Motor Finance have doubled in the past 18 months, Mani said in February, declining to specify a figure.
“One of the immediate triggers to venture into the new business could be the high number of re-possessed vehicles the firm has," said an analyst at a domestic brokerage declining to be identified.
Some say that with the recovery in the commercial vehicle market firmly in place, the worst could be over for the company.
In a 30 March report on Tata Motors, Jefferies India Pvt. Ltd analysts Govindrajan Chellappa, Rajasa Kakulavarapu and Apurva Kumar wrote that between 2012 and early 2014, Tata Motors, through Tata Motor Finance, had aggressively pushed certain products through easy finance schemes.
This has resulted in a rise in bad loans for Tata Motor Finance and its parent had to increase provisions to cover the bad debt of the financier.
“We believe the write-offs are nearly over. Pricing weakness, led by discounts in CVs (commercial vehicles) due to demand weakness and cars due to weak brand, resulted in another 250 bps (basis points) of margin fall. As demand for trucks improve, so will pricing," the analysts wrote. One basis point is one-hundredth of a percentage point.
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