Commercial Vehicle loan pools are not debilitated after implementation

e-way bill

The e-Way Bill has been made mandatory for the transportation of goods within a state or from one state to another. It is an electronic document that is generated while transporting goods that are valued above Rs 50,000.

ICRA, an independent and professional investment information and credit rating agency in India, has come up with a study that says that the commercial vehicle (CV) loan pools continue to exhibit a strong performance even the e Way Bill was implemented across the country on the 1st of April. It has also been reported that the average collection ratio is an astounding 95% for CV pools for the month of April.

It has also come to light that the collection efficiency that is being witnessed in April 2018 is almost 400bps higher than what was recorded during the same period last year.

There were some apprehensions amongst the transport operators, especially the small road transport operator segment (SRTO), regarding what effect the implementation of the Electronic Way Bill will have on their cash flows. These concerns primarily stemmed from the fact that these operators take time to align their systems and processes to the GST network.

However, Vibhor Mittal, the head of structured finance ratings at ICRA, tried to focus on the positives. He said,

“While these are still early days, the collection efficiency of 95% observed in April 2018 indicates that there are no visible signs of any material disruption in the earnings of the truckers.”

What does the ICRA note say?
The ICRA note states that the implementation of GST in July 2017 will augur well for the transportation and logistics sector in the long run. It believes that warehouse consolidation has resulted in improved load availability and drop in vehicle transit time. The strong collections of around 98% that was attained during the second half of fiscal 2018 clearly show that the lenders have been able to adjust to the new tax regime easily.

It is almost customary for collections to drop in April. These collections generally improve in March as the lenders put their recovery efforts and increased collection into use for attaining the curtailment of reported NPAs at the end of the fiscal. To clear the overdue and meet the payments due to the lenders, borrowers also go the extra mile and postpone some of their expenses. According to the note, some of the borrowers again slip in repayment in the month of April.

Rising fuel costs a worry
Although the asset quality has remained sturdy for the time being, some negligence of duty may occur due to the sudden and steep rise in fuel prices. Mittal said,

“The recent fuel price hike has increased input costs for transporters. In case the freight rates do not move in line with fuel prices, the profitability of some borrowers — especially in the lower tonnage vehicle segment — may get squeezed, leading to higher delinquencies in CV pools going forward.”

He also commented that factors such as favourable pool selection filters and adequate availability of credit enhancement in these transactions should ensure that the ratings remain stable.

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