The coronavirus pandemic led to a complete disruption in the Indian logistics market. Not only have businesses been in turmoil, but also, fleet owners have faced a hefty cash crunch. Paying for their monthly EMIs, opting for new loans, saving interest on EMI Moratorium among other things, have now become big concerns in the life of a fleet owner.
On Sunday, June 21st, Wheelseye organized its 8th edition of Facebook Live. The aim was to help our community understand the various aspects of Loans/EMIs, developments in the Banking sector and how all this affected the trucking industry and a fleet owners’ business.
We were honored to interact with Mr. Rohit Tiku, who is the Group Chief Risk Officer at Tata Motors Finance. He has 20+ years of experience working at pan India level, in sales, collection and risk.
What changes have been observed in loans due to COVID-19?
On the Demand side, demand in loans for new and old trucks is insignificant.
The Moratorium relief led to a decline in demand for working capital loans.
Some segments like coal, construction, LPG, pharmaceuticals have not been affected much by COVID-19. Consequently, demand for loans in these segments has been steady.
On the Supply side, the perspective of banks has been changing. Banks no longer emphasis on a customer’s profile, their CIBIL score or payment history.
Banks now look at a business’s viability, contract terms, their principals and credentials.
Due to rapid digitization, the speed of processing loans has increased. You no longer have to meet a financer to avail a loan.
The approval rate of loans by NBFCs has gone down by 90%.
Has there been any change in interest rates in times of Corona crisis?
For running loans, no changes have been observed in interest rates.
For new loans, there is a lot of uncertainty and volatility. To an extent, this also depends on the cost of borrowing.
How have loans affected the trucking business?
Loans are now dependent on the perspective of a company.
Companies now look at a business’s type and viability before giving out a loan.
Business contribution by large fleet owners will increase. Small fleet owners will be less active.
Financers can be conservative and can keep the interest rates lower, given the situation of cash crunch and decline in loans from the demand side.
What is the lifetime of a truck and how many times can it be refinanced?
The normal lifetime of a truck is roughly 15 years. The truck is then used for smaller, internal applications before it is refinanced.
But, in recent times, the built quality has improved and overall truck cost has increased. As a result, the average tenure of a truck too has increased.
Fleet owners now keep the truck 4-5 years longer before it goes for refinancing.
A truck is usually expected to be refinanced roughly 3 times before its lifecycle ends.
How has corona affected financing of different kinds of loans?
Demand in loans for new trucks has subdued.
Demand in loans for refinancing of old trucks has increased.
The shift from BS4 to BS6 has caused the fleet owners to move to old trucks. The EMI payments too have thus increased.
Since, the financing of old trucks comes under the unorganized sector. Small financiers are facing liquidity problems.
No problems would be faced in the business of new trucks since these are handled by large companies and there will be good credit flow.
How has digitization in the banking industry affected the speed of loans?
Processing time of loans has significantly decreased. Documentation now takes less time.
You no longer have to travel or meet the financer physically to get a loan. There is no need for references or any kind dependency.
However, the speed of approval has increased because banks no longer follow their traditional methods.
Is it justified for a bank to pressurize a customer to pay their EMI?
Reserve Bank of India (RBI) has given the authority to a bank or a finance company to decide whether it wants to give the facility of EMI Moratorium to its customers and for how long.
Thus, the bank decides whether a customer has to pay the EMI or if the customer can avail the moratorium.
Most commercial banks gave EMI Moratorium to their customers both in phase 1 (March, April, May), and phase 2 (June, July, August).
But, to avail the Moratorium, one shouldn’t have more than 3 overdue EMIs.
How can one save interest on EMI Moratorium?
Emergency Working Capital Loans (EWCL) are a better alternative to EMI Moratorium.
Using EWCL one can save at least 50% and up to 90% on interest.
Rather than taking up the moratorium, one can pay the EMI by taking a loan of the same value from EWCL.
Even if the interest rate for MSMEs is high (NBFC – 14% upper ceiling), the interest generated on EWCL is significantly much lesser.
To avail the EWCL, your annual turnover needs to be less than ₹100 Cr, outstanding gross loan less than ₹ 25 Cr and not more than 2 EMIs should be pending.
If the eligibility criteria are satisfied, one can avail a loan for a 20% outstanding loan amount at max 12% interest rate for 4 years.
The best part about this is, for the first 12 months, one only needs to pay the interest. The principal can be paid later.
Also, if you want to avail EWCL, not much documentation is required.
If you want to stop availing the EWCL, there is no penalty or processing fee.
It is important to note here, you won’t be able to avail EWCL if your vehicle account is an NPA (non-performing asset).
Also, if you want to avail the EWCL from a different bank, you have to get a no-objection certificate (NOC) signed from your primary bank.
We thank Mr. Rohit for gracing us with his presence and for being a part of our webinar. We also hope the above insights will be helpful for our trucking community.
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If you have any questions, contact us today Call: +9199900 33455 Email: firstname.lastname@example.org
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