Rising fuel costs put brakes on CV financing

Mumbai: Bank lending to the commercial vehicle (CV) segment faces increasing pressure as the ongoing Iran war has sparked a surge in fuel costs and operating expenses for fleet operators across India.Higher fuel prices are inflating overall logistics costs, prompting fleet owners to defer new vehicle purchases and slowing credit offtake for CV loans. Small fleet operators face the twin threats of compressed cash flows and weakening repayment capacity, a combination that analysts warn could accelerate delinquencies in a segment already showing early signs of stress."We are already seeing customers postpone purchases due to prevailing uncertainty, which is likely to significantly impact fleet utilisation," the head of micro, small and medium enterprises lending at a leading private sector bank said on condition of anonymity. "Any increase in retail diesel prices will sharply affect the commercial vehicle segment, particularly lower-end vehicles. With India's exports clearly slowing, freight movement is also taking a hit, as lower export volumes translate into reduced demand for transportation."The escalating conflict in West Asia has propelled crude oil prices to $115 per barrel, sharply higher than the $70 per barrel levels seen before the US-Israeli strikes on Iran on February 28. The price surge has begun to impact domestic fuel prices.129934957 Nayara Energy, one of India's largest private sector fuel retailers, has raised diesel prices by ₹3 per litre at its pumps, with industrial diesel rates also moving up-a direct cost escalation for fleet operators and logistics companies that run on thin margins.To cushion the blow on consumers and contain broader inflationary spillovers, the Centre has cut excise duty on petrol and diesel, partially offsetting the impact of higher global crude prices.According to an analysis by Nomura, most large commercial fleet operators will be able to pass on fuel cost increases relatively quickly. However, the bigger challenge lies in the reduction in the number of trips."While most large fleet operators will pass on the higher fuel cost immediately, individual vehicle owners may face challenges," said Shreya Shivani, research analyst at Nomura Financial Advisory and Securities (India). "We see greater impact from the slowdown in business activity. Post-Covid, the vehicle loan segment has benefited from healthy freight rates, stable fuel prices, decent economic activity and, most recently, GST (goods and services tax) cuts. However, current global events put this segment at risk."For newer fleet operators, the drag on cash flows from fewer trips will be sharper than for established players, said Nomura.Delinquency levels in the CV segment increased 0.3 percentage points to 2.1% in January, compared to the levels a few months ago, according to credit bureau TransUnion CIBIL, and the worsening geopolitical situation threatens to push this higher.

from Economic Times https://ift.tt/9iRIPzJ