An Insightful webinar with Mr. Rohit Tiku on various aspects of Loans/EMIs

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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. 

<strong>What changes have been observed in loans due to COVID-19?</strong>

  • 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%.

<strong>Has there been any change in interest rates in times of Corona crisis?</strong>

  • 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.

<strong><strong>How have loans affected the trucking business?</strong></strong>

  • 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. 

<strong>What is the lifetime of a truck and how many times can it be refinanced?</strong>

  • 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.

<strong>How has corona affected financing of different kinds of loans?</strong>

  • 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.

<strong>How has digitization in the banking industry affected the speed of loans?</strong>

  • 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.

<strong>Is it justified for a bank to pressurize a customer to pay their EMI?</strong>

  • 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.

<strong>How can one save interest on EMI Moratorium?</strong>

  • 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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