Surging inflation has increased loan defaults by truck operators as the recent hike in fuel prices continues to put pressure on their margins. The hike of Rs 3 a litre in diesel prices, which came into effect early last month, has not only led to a hike in their operating expenses but has also reduced the demand for truck services.

According to sources privy to the information, default rates have touched 5-6 per cent in the past six months as against the usual 1-2 per cent. Banks and other lending organisations agree that there has been a rise in delinquency rates, but the increase has only become significant during the past one month following the fuel hike.

Fuel costs account for about 60 per cent of the total operating expenses of truckers, while other costs such as maintenance, spare parts, labour and toll, account for the rest.

A senior official of a leading bank said, "We have experienced a rise in delinquency rates recently and the worst part is that the situation may not improve soon. The delinquency rate has been the most in the first time users (FTUs) category."

FTUs are operators who own two to three trucks. Generally, operators who own more than 15-20 trucks are known as large operators.

S P Singh, senior fellow and coordinator at the Indian Foundation of Transport Research and Training said, "There has been an indiscriminate addition to fleet size, which has led to an oversupply in the market. Optimum usage of truck fleets has reduced as many trucks lie idle because of a slump in demand for services."

Figures available with the Society of Indian Automobile Manufacturers suggest that although the growth in sales of commercial vehicles hasn't been tremendous in the second half of last year, it has grown 4 per cent in the first half of this year as against a decline of 2.25 per cent in the corresponding period of last year.

In addition, growth was also seen in the used truck market, which further helped in adding to fleet size.

"Delinquency rate is rising for banks and NBFCs. The reason for this could be numerous factors: a slowdown in various industries, the loan to value and increased tenure of loans. In many states, you need judicial permission to repossess the vehicles.

Thus, taking tough actions against defaulters has become more difficult. Also, lending has reached the marginal segment of borrowers in the last two to three years," says an analyst.

To tide over the situation, bankers have decided to reduce their lending exposure in some of the high-default markets. Besides, lending criteria will also be tightened in the coming months, says another bank executive on condition of anonymity.

"We're planning to reduce our exposure to FTUs, besides raising the lending norms in the commercial vehicle category. Under such circumstances, we find the large operators more reliable (on repayment of loans) than FTUs," he adds.

Commercial vehicle manufacturers like Ashok Leyland [Get Quote] have predicted the coming months to be tough as rising inflation levels will continue to hurt buying sentiments.

Shrinking finance availability will also pose problems.

"Customers (who buy in bulk) will buy six trucks instead of seven to offset the hike in prices," says an auto company official.

• Inflation, the silent killer!