Commercial vehicle (CV) financing could face rising asset-quality pressures in the first half of FY27 as moderating vehicle utilisation, higher fuel prices, and elevated operating costs begin to weigh on borrowers' repayment capacity, according to India Ratings and Research (Ind-Ra).
Replacement Demand to Sustain CV Sales, but Cost Pressures Build
The ratings agency said replacement demand is expected to remain the primary driver of growth for the CV industry over the medium term, supported by an ageing vehicle fleet, demand for more fuel-efficient vehicles and replacement requirements from small road transport operators (SRTOs) and fleet operators. Demand for used commercial vehicles is also expected to remain healthy as rising vehicle prices and the transition to stricter emission norms increase the cost of new vehicles.
However, Ind-Ra cautioned that higher fuel prices, inflationary pressures and increasing business acquisition costs could place additional strain on borrower cash flows and lender profitability.
According to the agency, borrower repayments have remained resilient despite external challenges, aided by contractual pricing mechanisms that allow many operators to pass on higher fuel costs. Market-load operators have also been able to adjust freight rates relatively quickly, while larger fleet operators continue to benefit from stronger utilisation levels and greater pricing flexibility.
Utilisation Set to Moderate; Smaller Operators Most Exposed
Nevertheless, the agency expects vehicle utilisation levels to moderate over the coming quarters as inflationary pressures and a potentially weaker monsoon affect freight demand. Lower utilisation could particularly impact smaller operators, whose vehicles may face reduced attachment rates amid softer demand.
Lenders Shift Focus from HCVs to ICVs and LCVs
Reflecting these evolving risks, lenders have become more selective in financing heavy commercial vehicles (HCVs), increasingly shifting their focus towards intermediate commercial vehicles (ICVs) and light commercial vehicles (LCVs), where freight demand is considered more stable, and business activity is largely interstate.
Ind-Ra estimates overall capacity utilisation across the CV sector at around 69.8% in FY26, which it believes remains sufficient to support medium-term demand for new vehicles.
The agency also noted that acquisition costs for financiers have increased significantly due to intense competition, with dealer payouts and sourcing expenses rising by 300-400 basis points across lenders, putting further pressure on profitability.
Looking ahead, Ind-Ra expects asset quality pressures to emerge during 1HFY27 as borrowers adjust to a higher-cost operating environment. Rising fuel prices, weaker monsoon conditions and a potential slowdown in infrastructure activity could reduce freight availability and vehicle utilisation, particularly in the medium and heavy commercial vehicle segments.
First-Time Buyers Face Highest Repayment Risk in 1HFY27
First-time vehicle buyers are expected to remain the most vulnerable borrower group, according to the agency. Ind-Ra said these borrowers typically have limited operating experience, weaker customer networks and lower financial resilience, while purchasers of new vehicles also face higher acquisition costs, rising operating expenses and increasing EMI-to-income ratios, all of which could affect repayment flexibility.