The economic slowdown starts showing up in diverse ways. If the headlines over the past few months were about the rapidly declining sales curve as far as the automobile sector is concerned, the vehicle financing market appears to be sending similar signals too.
According to a Business Standard report, a study by Indian Foundation of Transport Research and Training (IFTRT) has indicated that there has been a spurt in the number of vehicles being seized and parked in the stockyards and parking lots used by the financing firms. These are vehicles seized from borrowers who have failed to make the EMI payments against their vehicle loans. They are usually referred to as repossessed vehicles.
The figure being put out by IFTRT is around 50,000 commercial vehicles across 150 repossession yards spread across the country. Commercial vehicles are generally owned by the transport and logistics companies and they avail of vehicle loans and failure to pay the regular monthly instalments can lead to the financier, whether banks or other financing companies, repossessing the vehicles.
The significance of this number, according to the researchers at IFTRT is that as much as 40% of these repossessed vehicles are less than a year old This they say is different from the situation seen during two similar slowdown periods, 10 years ago and 6 years ago respectively.
The logical reason being put forth is that the overall slowdown including in the industry has led to lesser demand for freight vehicles and this has brought the freight rates down. It’s a highly demand oriented business and when the demand for trucks increase the companies quote higher freight rates and their earnings are high. It has been reported that the freight rates have been quite sluggish over the past few months eroding into the earnings of these transport and logistics companies. Even those operators who have been in the business for over 15-20 years find the going tough and have been facing frequent calls from their banks or lenders asking them to either pay up the loan or surrender their vehicles. Many claim they are seriously considering the second option. The sentiment among the transport company operators is also not quite upbeat. They don’t see the situation improving for some time to come.
Officials at the banks and financial institutions say they are also not keen on seizing the vehicles. If they find the borrower is genuine and wants to repay but the slowdown is affecting the repayments, they are willing to accommodate. It is only when they realise there is no intention on the part of the borrower to pay that they resort to repossessing the vehicle.
There is a counter-opinion too on this issue. Chennai-based Shriram Transport Finance is one of the largest in the truck financing space. They deal in funding used commercial vehicles purchases as well. They don’t see any spike in the number of repossessed vehicles.