“Demand for CV financing should hold, expect clients to absorb high interest rates”

Although rising inflation alone does not have a direct impact on demand for passenger or utility vehicles (CVs) or two-wheelers, a moderate slowdown in the pace of economic growth has the potential to keep purchasing demand muted, says Umesh Revankar, vice president and managing director of Shriram Transport Finance Company (STFC), the country’s largest commercial vehicle lender.

“The demand for used vehicles has picked up, given the weak purchasing power of new vehicles. Commodity price inflation is driving up prices for new and used vehicles,” Revankar said, speaking to The Sunday Express.

Regarding the impact of rising interest rates, he said rates alone cannot reduce the demand for auto finance. “CV financing demand has improved over the past four months. We expect demand momentum to continue in FY23. Rising infrastructure spending is driving demand for vehicles and newer equipment, particularly in the earthmoving business. Macroeconomic trends have been positive and with normal monsoons and a good harvest, we expect our customers to be able to absorb higher interest rates.” , added Revankar.

He noted that lightweight CVs (LCVs) are doing well thanks to an increase in e-commerce and better last-mile connectivity, adding, “Demand for LCVs is likely to increase, as logistics industries and e-commerce are growing. quickly.” Light commercial vehicles largely provide the movement of agricultural products, online retail, pharmaceuticals and basic consumer goods, and show resilience.

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Additionally, due to rapid urbanization and digital disruptions, there are new retail and e-commerce platforms continuously, which require efficient logistics, driving the growth of the LCV market and hence , the application for VUL loans.

“At STFC, our portfolio of small and light VC portfolio loans grew from 19% to 27% of AUM over the past four years and stood at Rs 34,600 crore in March 2022,” he said. -he declares.

Regarding the RBI’s tightening of NBFC rules, Revankar said that NBFCs have always benefited from regulatory arbitrage compared to banks and over the past three years much of that has disappeared.

“Despite the evolution of the regulatory framework, the NBFC sector still enjoys certain advantages in terms of flexibility, product innovations, geographical expansion and ability to mobilize resources. NBFCs have been able to keep regulatory developments in their stride and I believe that increased oversight, better regulation, transparency and accountability are long-term positives for the industry.

“In FY23, with the macroeconomic situation improving, the rural sector in recovery mode, normal monsoons and infra spending, we expect asset quality to improve. improve further.”

Covid has led to non-deployment of assets in certain segments and geographies. While the situation has returned to normal, a lot has improved and lenders have been able to wind down their troubled loans gradually over the past three quarters as the economic cycle has improved, Revankar added.

He also ruled out any plans to apply for a commercial banking license. “We prefer to be an NBFC. Our customer base is unbanked and underbanked and to better serve my customers I need to be nimble and understand my segments.

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