The segment, already slowing due to pricing pressures, could hurt more and force lenders to seek alternative growth paths. The latest central bank data suggests that credit growth for vehicle finance has slowed to nearly 3% year-on-year and 1% month-on-month.
“Vehicle availability was improving, but the recent Russian-Ukrainian conflict has again raised concerns about semiconductor supply,” said Anand Dama, principal analyst at Emkay Global. “As a result, few financiers have ventured into used-car financing for volume and better returns. ‘Ukraine would cause fuel prices to rise or business to be disrupted.’
Chip supply disruptions are causing widespread concern, as Russia and Ukraine are major sources of noble gases and precious metals used in semiconductor manufacturing.
This could potentially derail improved chip supply and continue to impact passenger vehicles, high-end two-wheelers and utility vehicles. A sharp increase in diesel prices could also impact the profitability of truckers.
Additionally, Russia’s invasion of Ukraine pushed Brent crude oil prices to a nearly 14-year high of $140 from $97 before the crisis began. Oil marketing companies are already making losses as they were unable to pass on the increase.
“Commercial vehicle financiers are facing some credit deterioration in their borrower segments as borrower cash flows are impacted by an increase in the cost of fuel, which accounts for up to two-thirds of operating costs. for vehicle operators,” said Vivek Jain, Director, India Assessments and Research. “In the event of low fleet utilization due to overall weak aggregate demand, increases in fuel prices may not be passed on as freight rates increase. In such a situation, borrowers whose thinner margins can end up in default, which impacts commercial vehicle loan portfolios for their lenders.”