While the rising inflation in isolation won’t have a direct impact on demand for either passenger or commercial vehicles (CVs) or two-wheelers, a moderate slowdown in the pace of growth in the economy has the potential to keep demand for purchases muted, says Umesh Revankar, vice chairman & managing director, Shriram Transport Finance Company (STFC), the largest commercial vehicle lender in the country.
“Used vehicle demand has picked up, given the subdued purchasing power for new vehicles. The commodity price inflation is leading to higher vehicle prices for both new and used vehicles,” Revankar said, speaking to The Sunday Express.
On the impact of rising interest rates, he said rates alone cannot dent demand for vehicle financing. “Demand for CV financing has improved in the last four months. We expect the demand momentum to sustain in FY23. Higher infrastructure spending is driving demand for newer vehicles and equipment especially in earth moving activities. Macro trends have been positive and with normal monsoons and a good harvest, we expect that our customers will be able to absorb higher interest rates,” Revankar further said.
He noted that light CVs (LCVs) are doing well on the back of a surge in e-commerce and better last-mile connectivity, adding, “The demand for LCVs is likely to increase, as the logistics and e-commerce industries are growing rapidly.” LCVs largely cater to the movement of agricultural produce, e-retail, pharmaceuticals and consumer staples, and are showing resilience.
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Additionally, due to rapid urbanisation and digital disruption, there are continuous new retail and e-commerce platforms, which require efficient logistics, leading to the growth of the LCV market and thereby driving demand for LCV loans.
“At STFC, our small and light CV portfolio loan book has grown from 19 per cent to 27 per cent of the AUM in the last four years and stood at Rs 34,600 crore as of March 2022,” he said.
On the tightening of NBFC rules by the RBI, Revankar said NBFCs have historically enjoyed a regulatory arbitrage versus banks and in the last three years, a lot of that has gone away.
“Despite the changing regulatory framework, the NBFC sector still enjoys some benefits in terms of flexibility, product innovations, geographic expansion and resource-raising ability. NBFCs have been able to take the changing regulations in their stride and I believe enhanced supervision, better regulation, transparency and accountability are in the long-term positive for the sector.
“In FY23, with the improving macro-economic situation, the rural sector in revival mode, normal monsoons and infra spending kicking in, we expect asset quality to further improve.”
Covid led to non-deployment of assets in certain segments and geography. As the situation returned to normalcy, a lot has improved and lenders have managed to progressively pare down their stressed loans, gradually in the last three quarters, with an improvement in the economic cycle, Revankar added.
He also ruled out any plan to apply for a commercial bank license. “We prefer to be an NBFC. Our customer base is unbanked and under-banked and to serve my customers better I need to be nimble-footed and understand my segments.”