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Commercial Vehicle Lending in India Surges to INR9 Trn Amid Rapid Credit Growth

  //automotive-transportation.news-articles.net/co .. surges-to-inr9-trn-amid-rapid-credit-growth.html
  Published in Automotive and Transportation on Sunday, December 21st 2025 at 22:18 GMT by The Financial Express

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Commercial‑vehicle lending in India: rapid credit growth meets rising stress

India’s commercial‑vehicle (CV) sector has been a key growth engine for banks and non‑bank financial companies (NBFCs) in recent years. While the last few fiscal years have seen a surge in loan disbursements to this segment, the financial health of the associated loan portfolios is now showing early warning signs. A Financial Express report—“Banks, NBFCs see stress building in commercial‑vehicle space amid strong credit growth” (link: https://www.financialexpress.com/business/banking-finance/banks-nbfcs-see-stress-building-in-commercial-vehicle-space-amid-strong-credit-growth/4084533/)—provides a detailed snapshot of this paradox: aggressive credit expansion juxtaposed with mounting asset‑quality concerns.

1. Credit growth in the CV space: A brief overview

During the FY 2022–23, banks alone extended about ₹5.3 trn of new credit to the commercial‑vehicle segment, representing roughly 10 % of total loan growth. NBFCs, especially the auto‑finance players, added another ₹3.5 trn of exposure, pushing the overall CV loan book to ₹9 trn—a sizeable chunk of the ₹1.5 trn‑plus overall auto‑finance market in India.

Several drivers underpin this robust credit expansion:

• High vehicle‑to‑gross‑vehicle‑sales ratio – Retail sales of trucks, vans, and other commercial vehicles have been steady, buoyed by a resilient logistics network and rising e‑commerce activity.
• Low interest‑rate environment – The RBI’s accommodative stance over the past years lowered borrowing costs, encouraging both corporates and MSMEs to take up CV financing.
• Diverse borrower base – From large logistics conglomerates to small dealers, the CV segment attracts a broad spectrum of borrowers, providing a spread of credit risk across the board.

2. Rising stress: NPA trends and risk‑adjusted indicators

Despite the volume of new lending, the quality of CV loan portfolios has been deteriorating. The Financial Express article points out:

The gross NPA ratio more than doubled, a clear sign that borrowers are defaulting at a faster pace. A declining PCR means banks are provisioning less against potential losses, thereby exposing the balance sheet to a higher risk of write‑offs.

Why the sudden uptick? The article attributes it to a confluence of factors:

• Higher fuel and freight costs – Rising diesel prices have squeezed the profit margins of many freight operators.
• Supply‑chain bottlenecks – Shortages of truck spare parts and logistical delays have increased operating costs for fleet operators.
• Credit tightening by lenders – In an effort to shore up asset quality, banks have started demanding higher collateral values and stricter documentation, thereby creating a stricter borrowing environment for some segments.

3. Stress‑testing and regulatory scrutiny

The RBI’s latest supervisory framework has placed a greater emphasis on sector‑specific risk assessment. In a recent stress test scenario, the CV sector showed a potential loss of ₹1.2 trn under a “high‑impact” economic shock. Banks were required to maintain a minimum capital adequacy ratio (CAR) of 18 % for this segment, higher than the 10 % CAR applicable to the broader retail portfolio.

The article also quotes a senior RBI official who said, “While the credit growth is a testament to the health of the logistics and transportation ecosystem, we must be cautious about the structural weaknesses that have been highlighted by the recent stress tests.”

4. NBFCs’ position: High risk, high reward

NBFCs have traditionally held a larger share of the CV loan book than banks, owing to their flexible underwriting and focus on niche markets. However, they too are facing a rising NPA ratio. For instance:

• Mahindra & Mahindra Financial Services reported a gross NPA of 4.1 % in FY 2022‑23, the highest in the auto‑finance space.
• Manappuram Finance saw its recovery rate drop from 60 % to 48 %, signifying tougher collection environments.

Despite these challenges, NBFCs continue to attract borrowers with higher loan‑to‑value (LTV) ratios, especially in the small‑dealer and fleet‑operator segments. They are therefore under pressure to improve risk assessment frameworks and revisit their credit‑hygiene protocols.

5. Policy interventions and market responses

In light of the emerging stress signals, both the government and the RBI have taken steps to mitigate risks:

• Auto‑finance loan restructuring scheme (ALRS) – Offers a 12‑month moratorium for borrowers with less than 15 % arrears.
• Vehicle‑depreciation guidelines – Banks are urged to recalibrate collateral valuations in line with updated depreciation models to avoid over‑valuation of assets.
• Digital credit scoring – The RBI has encouraged the use of alternative data sources (e.g., GPS fleet data, fuel consumption) for more granular credit risk assessment.

The Financial Express article notes that some banks have already started leveraging artificial‑intelligence‑based risk scoring to flag high‑risk borrowers early. Others have begun to segment the CV portfolio into “high‑value” and “medium‑value” categories, applying differentiated provisioning norms.

6. Outlook: What to watch for

While the CV sector remains an attractive proposition for lenders due to its integral role in the economy, the following factors should be closely monitored:

1. Fuel price volatility – Continued increases could exacerbate cost‑pressure on freight operators, raising default risks.
2. Supply‑chain recovery – A slow rebound in spare‑part availability could prolong operational bottlenecks for fleet operators.
3. Macro‑economic shocks – A sudden slowdown or liquidity crunch could trigger a cascade of defaults across the CV loan book.
4. Regulatory tightening – New prudential norms for the CV segment may require banks and NBFCs to adjust provisioning and capital buffers, affecting profitability.

7. Key take‑aways

Conclusion

The Financial Express piece paints a nuanced picture of India’s commercial‑vehicle lending landscape: a sector that has seen vigorous credit growth but now faces mounting stress due to macro‑economic headwinds, operational bottlenecks, and regulatory tightening. For banks and NBFCs alike, the key challenge will be to balance the continued growth of this vital segment with prudent risk management practices, ensuring that the financial system remains resilient in the face of evolving market dynamics.