Financing Small Commercial Vehicles

Let me straight way begin with the announcement of Jammu and Kashmir Lt Governor Manoj Sinha made on Friday that his administration is on a mission to uplift, mentor and provide sustainable livelihood to the youth of Jammu & Kashmir. He launched a youth livelihood programme ‘MUMKIN’ for the transport sector by distributing subsidized small commercial vehicles among 10 young beneficiaries across the region.

It’s worth mentioning that the union territory administration has entered into a partnership with Ashok Leyland with an aim to move towards creation of a better socio-economic ecosystem, self-employment opportunities, and elimination of poverty in the J&K region.

Notably, the partnership aims to create entrepreneur opportunities for the youth of Jammu & Kashmir, by offering small commercial vehicles, besides enabling setting up of a Regional Automotive Centre of Excellence housed in the Government ITIs, Driver Training Institute in Srinagar, and Model Schools. These Model schools, as per the initiative will be the Center of Excellence for other Government schools providing a holistic learning experience based on the ‘Road to School’ model which Ashok Leyland has been able to successfully implement in other states.

Meanwhile, it would not be out of place to mention that transport sector in J&K, especially in Kashmir region has been prone to get immediately hit in any kind of disturbance. Despite all sorts of turmoil in the sector, it still continues to be looked upon as one of the viable means to carve out livelihood. Here, it’s worth mentioning that over 1.5 lakh people affiliated with the transport sector in Kashmir were forced to live in penury as the lockdown since August last year coupled with Covid-induced lockdown this year hit them badly. However, a quick performance review reveals that the transport sector has always shown resilience to stay on roads even in extreme circumstances.

Now picking the transport sector to mark the beginning of the government’s commitment towards livelihood generation for youth, a financial scheme has been rolled out. The initiative is to provide small commercial vehicles to youth with reasonable subsidies both from the manufacturer and Government, enabling them to earn a decent livelihood.

One of the major hurdles faced by the unemployed youth  in getting access to government programs like the one rolled out on Friday under the banner of ‘MUMKIN’ has been lack of guidance in availing financial assistance. However, as far as the financial scheme to facilitate the purchase of small commercial vehicles under the initiative is concerned, J&K Bank on the same day (Friday) launched a separate Commercial Vehicle Finance under Sambhav 2020 initiative of the J&K Government. The Bank under the “Mission Youth Initiative” has put its share in the partnership of M/S Ashok Leyland with Government of J&K for socio economic development driven by livelihood generation solutions for unemployed youth of J&K. 

Even as the bank is already having a loan scheme to finance purchase of all sorts of commercial vehicles, this J&K Bank Commercial Vehicle Finance under Sambhav 2020 initiative of the J&K Government is a customized scheme for unemployed youth of J&K. Under the arrangement, the identified beneficiaries shall be supported by Ashok Leyland and Govt of J&K through cash assistance to meet their margin requirements including insurance / registration charges & initial repayment obligations (EMIs).

Before discussing the features of the scheme, let me share a very important story as told by of a reader – a transporter by profession. One of his acquaintance wanted him to sell one of the financed vehicles at a premium. To make the things clear, he was offering him Rs. One lac over and above the original cost of the vehicle which included the bank finance. The acquaintance assured him that the bank loan would be repaid as per the repayment schedule of the bank by him. The transporter was surprised by the offer and sought guidance whether to go ahead with the deal or not. ‘How is it possible?’ he asked.

Here I remember a case of a fraud perpetrated by an owner of a financed commercial vehicle. He sold the financed vehicle to a third party by managing to show that the outstanding balance against the vehicle was less by Rs.1.50 lac than the actual loan outstanding. The third party purchased the vehicle and after two years he came to know that he was cheated when he found his outstanding balance was not reducing despite paying regular installments. He was helpless. Neither he nor the actual borrower had informed the bank about the changing hands of the financed vehicle.

Here it is noteworthy that selling and buying of the financed vehicle without permission of the concerned bank is illegal. Any such transaction should have bank’s nod, otherwise a case can be registered against the borrower and even the person who purchases the financed vehicle, be it commercial or non commercial.

Now let’s have a look at the parameters which can guide an unemployed youth to own a small commercial vehicle through a tailor-made loan scheme: J&K Bank Commercial Vehicle Finance under Sambhav 2020 initiative of the J&K Government

How is this scheme different from a normal commercial vehicle loan scheme?

At the moment, this scheme is specifically tailored to extend finance to the eligible beneficiaries for purchase of small commercial vehicles-Dost Strong – manufactured/supplied by Ashok Leyland. However, commercial vehicles of any other manufacturer/supplier which may be approved under the scheme by the Govt of J&K in future can also be financed under the scheme.

Who is eligible to avail the benefits under the scheme?

The scheme is exclusive for the unemployed youth of J&K between the age of 22 to 35 years. Those individuals desirous of purchasing small commercial vehicles- Dost Strong – manufactured by Ashok Leyland (Transport vehicles) are eligible to avail financial facility under the scheme. 

However, the beneficiaries eligible under the scheme shall be identified by concerned Deputy Commissioners or any other Govt. official/Deptt. designated by the J&K Government.

How much loan would be granted under the scheme and how it is to be repaid?

Maximum 90% of the on road cost of vehicle subject to a maximum of Rs 6.65 lakhs. The on-road cost of vehicle includes cost of vehicle, one-time registration charges, road tax and first year insurance premium.

The borrower has to pay 10% margin. Here, the contribution from Ashok Leyland shall be treated as margin contribution. However, any shortfall in the minimum margin requirement due to any change in cost of vehicle shall be borne by the borrower from his own sources. 

The loan is to be repaid in 84 Equated Monthly Instalments (EMIs) including moratorium of three months from the date of first disbursement.

Remarkably, the rate of interest is very competitive. At the moment, it’s 3Y MCLR + 1.00% (fixed), which means the present effective rate of interest is 9.00% with monthly rests.

Meanwhile, it’s important that the applicants are not defaulters with any bank or financial institutions. Besides,  the existing loan facilities (if any) availed by the applicant should be standard and there are no over dues in any account.

What is the support extended by the J&K Government under the scheme?

The J&K Government will support the borrowers by way of monthly cash assistance of Rs 10000 for an initial period of 06 months in lieu of equated monthly installments (EMIs) to be paid by the borrower  & any other amount as may be announced by the government under the scheme.  

Are borrowers required to offer guarantee of third person or mortgage of immovable property to avail the financial facility under the scheme?

No. Borrower is not required to submit third party guarantee or mortgage of property under the scheme. The vehicle to be purchased will be hypothecated to the bank. And 

collaterally, the loan will be covered under Credit Guarantee Scheme (CGTMSE) of Govt of India & premium shall be borne by the bank.