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IBA directive gives a fillip to CV financing

Anand Krishnamoorthy

NEW DELHI, Feb. 6

FINANCING of commercial vehicles has become cheaper and easier after a "suggestion'' by the Indian Banks' Association for easier lending norms, which promises to revive demand and boost sales, manufacturers and financiers say.

The commercial vehicle industry is optimistic of a revival of demand as more non-banking finance companies (NBFCs) are now able to get cheaper re-finance from banks, which they are passing on almost in entirety to end-users.

"Banks are taking a much more positive attitude toward NBFCs now, particularly even those which are not AAA-rated (the top most rating indicating highest safety),'' Mr S.V. Parthasarathy, the Executive Director of Ashok Leyland Finance Ltd, one of the leading commercial vehicle financier said.

The banking association had late last year issued an advisory to banks to ease funding NBFCs for the purpose of onward lending to commercial vehicle buyers, a process which had hit a roadblock after the NBFC crisis that sprung after the CRB scandal, involving Chain Roop Bhansali, in the mid 1990s.

IBA advisory, most of which was based on a committee set up under Mr R.V. Shastri, followed a meeting with the Finance Minister by the automobile industry and vehicle financiers. "Due to easier re-finance, today commercial vehicle lending rates have averaged to a level of about 13.5-14 per cent, which is at least 100 basis points lower than what it was six to eight months ago,'' Mr Parthasarathy said.

Vehicle manufacturers, who acknowledge that the medium and heavy commercial vehicle industry has indeed picked up a bit, however, want to keep their fingers crossed about any possibility of revival of demand. According to the latest industry figures, domestic sales of commercial vehicles in April-December was 56,092 units, which is about five per cent higher than sales in the same nine months of the last financial year.

"Its a bit too early to say. I must say the effects of the directive has been more or less mixed as issues like tax on hire purchases financed by NBFCs tend to off set the gains in lower re finance rate,'' an official at Tata Engineering and Locomotive Co Ltd, the country's largest truck maker said. "There is definitely a downward movement of interest rates to the end user. With competition among NBFCs deepening and the market having enough liquidity, the situation is certainly not bad,'' the Tata Engineering official said requesting anonymity.

Finance companies want more to be done to revive demand, particularly granting of infrastructure status on financing of commercial vehicle. "Presently, financing of a commercial vehicle by a scheduled commercial bank is treated as infrastructure sector lending. But if an NBFC borrows from a scheduled commercial bank for onward lending to commercial vehicle finance, the same status is not given. That has to be rectified,'' Mr Parthasarathy said. Also, more needs to be done regarding the finance of second-hand commercial vehicles, they say.

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