Mumbai: Fleet operator Roshan B. Rajlywal sold six out of his eight light trucks because he wasn’t able to service the loans he had taken to buy them. He had to spend nearly 1 lakh on monthly loan repayments.

“I was finding it extremely tough to pay the instalments as the business had shrunk in a big way," said the Kharghar, Navi Mumbai-based owner of Balaji Packers & Movers Ltd, a logistics firm that offers packaging, warehousing, cargo and relocation services.

Having sold most of the vehicles, his monthly liability is now down to 17,000.

Transporters like Rajlywal, who operate small and light commercial vehicles such as Tata Ace, Mahindra Maxximo and Tata 407, haven’t still shaken off the effects of the two-year economic downturn that depressed demand for freight haulage and idled fleets.

Fleet operators who own heavy trucks have found some relief, thanks to an improvement in the capital goods sector and a softening of diesel prices.

No such relief has come to light commercial vehicle operators, whose fortunes have a strong correlation with items of discretionary purchase such as food items. That has meant an increase in defaults for lenders.

“We have seen some turnaround in heavy-duty trucks, albeit on a low base, on account of some pickup in the infrastructure and other sectors. But a recovery in consumables which drive sales of light and small trucks within a city is yet to be seen," said Deep Mukherjee, senior director at India Ratings & Research, a Fitch Group firm.

In the nine months from April to December, sales of light commercial vehicles dropped 14% to 252,144 units from a year ago, according to industry body Society of Indian Automobile Manufacturers (Siam).

After a strong run for several years, sales of small and light trucks hit a roadblock in May 2013 and have been on the decline since then.

Non-availability of finance, said R. Ramakrishnan, senior vice-president of the commercial vehicle business at Tata Motors Ltd, is one of the biggest deterrents for sales of such vehicles.

Almost all the vehicles in the segment are bought on credit. Typically, the buyers of such trucks are small entrepreneurs who use cash generated by their business to repay loans.

“Unlike the heavy duty truck buyers, most small and light truck owners are first-time buyers and there is no track record for the financiers to refer to," said Ramakrishnan.

In a research note on the automobile sector earlier this month, analysts Subrata Ray, Shamsher Dewan and Jitin Makkar of Icra Research Services wrote that sales in the light commercial vehicle segment could decline by around 10-12% during fiscal 2015. “The segment’s prospects are also influenced to a great extent by constrained financing environment amidst rising delinquencies."

Among financial institutions, the finance arms of auto makers, which draw their business largely from the parent companies, have been hit the hardest.

The non-performing assets, or NPAs, for Tata Motor Finance Ltd, a unit of Tata Motors, for instance, has doubled in the last 18 months, said Shyam Mani, managing director at Tata Motor Finance. He declined to elaborate.

“The economy hasn’t picked up the way it was anticipated," he said, adding that the company had reduced the loan-to-value ratio from 95% earlier to 85-90% now, he said.

This means the buyer will have to make a higher down payment to buy the truck. Small and light commercial vehicles account for 40% of Tata Motor Finance’s portfolio.

“This is a earn and pay segment," said Ramesh Iyer, managing director of Mahindra Financial Services Ltd. An oversupply of vehicles in the system coupled with a sluggish economy has impacted the cash flow of the owners.

This has resulted in poor maintenance of the vehicles and hit their resale prices, said Iyer, adding that his firm, too, has been cautious in lending and had adopted measures including reduction of the loan-to-value ratio to 75-80%.

To mitigate risks, the company is also seeking collateral in some cases, he said. At the end of the September quarter, Mahindra Financial Services, the finance arm of Mahindra and Mahindra Ltd, saw its net NPAs rise to 6.3% from 4.1% earlier. Small and light vehicles account for 7-8% of the company’s balance sheet.

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