Cholamandalam Investment and Finance Company Ltd. has utilised the window provided by the Reserve Bank of India’s decision to allow retail borrowers the option of availing a loan moratorium to improve its gross non-performing assets ratio, said Chief Financial Officer Arulselvan D.
“Our asset quality improved in June compared with March and as well as from December 2019,” said Mr. Arulselvan who is also an executive vice president at the Murugappa Group’s non-banking financial company. In December, the lender’s gross NPA ratio was 3.5%; it deteriorated to 3.8% in March but has since improved to 3.3% as of June. “Normally, towards the financial year end, the industry typically improves the trend compared to December; it used to slide a bit in June before we tighten collections.”
This year, the sudden nationwide lockdown saw the financial services industry lose a few days in March. “With the moratorium on, no billing was being done to customers whose dues came up in May and June. So when our borrowers started operating their trucks, we urged them to clear the previous 3-4 instalments since anyway there was no pressure on them to pay the more recent ones. They would then start with a clean book at the end of the moratorium period,” the CFO said.
“In a normal scenario, the pressure on the customer would have been higher because he would have had to service two EMIs in the month,” he added
‘CV revival soon’
Mr. Arulselvan expects the commercial vehicle (CV) industry to revive soon. “For tractors, there was no transition required from BS-IV to BS-VI. So, both sales and financing of vehicles and spares did well with the stock smoothly rolling over into the new financial year. “For CVs, the BS-IV stock had to be cleaned out by March 31 and they had to begin the new fiscal afresh with BS-VI stock. They suffered a supply-side constraint.”
Observing that even prior to the COVID-19 shutdowns, the sector had been going through a downturn, he said, “Up to Q1 of last year, it was okay. After that, it started sliding. COVID had a bigger impact”. The year before that also wasn’t a growth story of significant value. He added that given that a CV is a depreciable asset, replacement demand is inevitable. “At some point you have to replace the vehicle, especially long-haul ones. Suppliers to reputed companies are expected to not engage vehicles beyond a certain age, depending on the application.
Mr. Arulselvan expects replacements to begin happening soon. “The replacement cycle can at best be pushed six months or a year. But after that, vehicles need to be replaced because the cost of running them will go up, there will be more uncertainties on deliveries, breakdowns, etc.
“But for COVID, the upturn should have started now. Now, Q3 is the expectation. Even if it misses Q3, I think it will certainly start in FY22,” he added.