Banks resume financing of commercial vehicles

Commercial vehicle (CV) financing is again gaining popularity among banks.

Lenders had virtually stopped lending to this segment for the past couple of years, fearing deterioration in their credit quality. Demand for these loans has also remained muted. With hopes of economic recovery gaining traction and improvement in business sentiment, bankers are now willing to finance purchase of CVs.

Romesh Sobti, managing director and chief executive officer at IndusInd Bank, told analysts during a recent interaction: “The auto and CV market is now showing more distinct trends of an upturn after a slow July and August...For the first time in the last 12 months we saw a net accretion to our vehicle financing book during the month of September, which leads us to the belief we have always stated that in the third quarter we will start seeing more of this and fourth quarter should see a surge in all the financing Stock Market Tips

While overall commercial vehicle sales have declined by close to one per cent on a year-on-year basis, bankers said manufacturers like Ashok Leyland and Tata Motors are now showing growth, leading to a pick-up in CV loan disbursements.

CV loans accounted for 16 per cent of IndusInd Bank’s advances at the end of the July-September period. It was 21 per cent a year earlier and 24 per cent at the end of September, 2012 Free Share Tips

S V Parthasarathy, head of consumer finance at IndusInd Bank, said: “For the first time possibly in couple of years we have seen improvement in CV, that too especially in September...Should the growth continue we should have a much better third and fourth quarters.”

Most bankers echoed a similar view.

A Surendran, head of retail and international banking business at Federal Bank, told Business Standard: “Now, there is a positive sentiment prevailing in the economy. If there is a rate cut, it will lift sentiment further. We expect the CV segment to perform well in coming quarters. We are geared up for this opportunity and ready with specific products for this segment Intraday Trading Tips

Bankers said their existing CV loans were performing well and non-performance of this book now appears a thing of the past.

A few lenders who have not been traditionally aggressive in the CV financing segment are also looking to exploit the revival in this segment. Rakesh Sharma, managing director and chief executive officer at Lakshmi Vilas Bank, said: “The CV segment is now expected to do well. We have not been aggressive in this segment. While our focus continues to be retail and SME financing, we will certainly look for opportunities to grow our CV book Commodity Trading Tips

Some of the banks, however, continue to remain cautious and plan to wait and watch before stepping up disbursement of CV loans.

Sanjay Arya, executive director at United Bank of India (UBI), said: “For the last two to three years the CV industry was in a bad shape. While we didn't stop, we reduced fresh lending to this segment because of NPAs (non-performing assets). Now, there is an uptick and things are looking positive for the CV industry. We will wait and watch for some more time before increasing our lending once again Nifty Trading Tips