Budget 2017 has created a challenging environment for NBFIs with high exposure to motor vehicle lending due to lowering of Loan-to-Value (LTV)(25% for Three Wheelers, 50% of Motor Cars and Vans) and increase of import duties, LOLC Securities said in an equity research report on Central Finance.
Further removal of income tax exemption on debentures’ interest income creates more level playing field with instruments such as Fixed Deposits, creating more opportunities for NBFI’s like CFIN to enhance its deposit base.
However with ongoing interest rate rise we see slow down of private sector credit creating a downward trend of leasing and loan volumes of NBFI sector while increased vehicle taxes and currency depreciation further intensifying the negativity. But CFIN historically has been maintaining a LTV ratio of 70-80% in its vehicles advances with a balanced vehicle leasing portfolio.
Thus we believe that impact of LTV rule will be limited for CFIN. CFIN on the other hand will benefit on increasing LTV of commercial vehicles to 90% and upcoming construction sector projects.
Further removal of income tax exemption on debentures’ interest income creates more level playing field with instruments such as Fixed Deposits, creating more opportunities for NBFI’s like CFIN to enhance its deposit base.
However with ongoing interest rate rise we see slow down of private sector credit creating a downward trend of leasing and loan volumes of NBFI sector while increased vehicle taxes and currency depreciation further intensifying the negativity. But CFIN historically has been maintaining a LTV ratio of 70-80% in its vehicles advances with a balanced vehicle leasing portfolio.
Thus we believe that impact of LTV rule will be limited for CFIN. CFIN on the other hand will benefit on increasing LTV of commercial vehicles to 90% and upcoming construction sector projects.
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