While rising inflation in isolation will not have a direct impact on demand for passenger or commercial vehicles (CVs) or two-wheelers, a moderate slowdown in the pace of growth in the economy has the potential to keep purchasing demand subdued, says Umesh Revankar, vice-chairman and managing director, Shriram Transport Finance Company (STFC), the country’s largest commercial vehicle lender.
“Demand for used vehicles has increased, given the reduced purchasing power for new vehicles. Commodity price inflation leads to higher vehicle prices for both new and used vehicles,” Revankar told The Sunday Express.
On the impact of rising interest rates, he said that rates alone cannot reduce the demand for vehicle financing. “The demand for CV financing has improved over the past four months. We expect the demand momentum to be sustained in FY23. Higher spending on infrastructure is driving demand for newer vehicles and equipment, especially in earthmoving activities. Macro trends are positive and with normal monsoons and a good harvest, we expect our customers to be able to absorb higher interest rates,” said Revankar.
He noted that light CVs (LCVs) are doing well thanks to the rise of e-commerce and better last-mile connectivity, adding, “The demand for LCVs is likely to increase as the logistics and e-commerce industry is growing rapidly.” LCVs are mainly used for the movement of agricultural products, e-retail, pharmaceutical products and basic consumer products, and show resilience.
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In addition, due to rapid urbanization 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 thus fueling the demand for LCV loans.
“At STFC, our small and light CV loan portfolio has grown from 19 per cent to 27 per cent of AUM in the last four years to Rs 34,600 crore as of March 2022,” he said.
On RBI’s tightening of NBFC rules, Revankar said NBFCs have historically enjoyed regulatory arbitrage vis-à-vis banks and in the last three years, much of that has gone away.
“Despite the changing regulatory framework, the NBFC sector still enjoys some advantages in terms of flexibility, product innovation, geographical spread and ability to raise resources. NBFCs have been able to take changing regulations in their stride and I believe that improved supervision, better regulation, transparency and accountability are positive for the sector in the long run.
“In FY23, with improving macroeconomic situation, rural sector in revival mode, normal monsoon and infra consumption, we expect asset quality to further improve.”
Covid has led to a misallocation of funds in certain segments and geographies. As the situation returned to normal, much has improved and lenders have been able to progressively reduce their stressed loans gradually over the last three quarters, with the economic cycle improving, Revankar added.
He also dismissed any plan to apply for a commercial bank licence. “We prefer to be an NBFC. Our client base is unbanked and underbanked and to better serve my clients I need to be nimble and understand my segments.”
