Bangalore: India’s banks are cutting back on loans to buyers of motorbikes and scooters, crimping sales growth in the world’s second-largest two-wheeler market, an industry executive said on 5 July.
Easy bank credit has in recent years fuelled a market also driven by a booming economy, new model launches, deficient public transport and rising oil prices that prompted commuters to buy fuel-efficient bikes and scooters.
Sales growth in the market, projected to reach 10 million units by 2010, has skidded in the past four months as banks closed off the loan tap to curb a rise in defaults, said K.N. Radhakrishnan, president, TVS Motor Company, India’s third-biggest maker of two-wheelers.
“Non-availability of finance is driving the sector,” Radhakrishnan told reporters after TVS introduced a new premier model, the Apache RTR, targeted at young racing enthusiasts.
“Gone are the days when a buyer could go to a showroom, get an instant loan without even showing proof of income and drive off with a bike,” Radhakrishnan said.
India’s two-wheeler market grew by 11.42 percent during the year ended March.
But sales of scooters and motorcycles — two-thirds of which are financed by banks — dropped in June for the fourth month in a row, hurting sales at the biggest manfacturers including Hero Honda, Bajaj Auto and TVS.
At TVS, sales last month dropped 15% to 97,984 units.
Banks have raised loan rates by as much as 2.5 percentage points since the start of 2007, taking their cue from the Reserve Bank’s increase of its short-term lending rates twice this year to the highest in more than four years to cool credit growth and tame inflation.
Bank credit has grown at an annual pace of almost 30% in the past five years, encouraged by accelerating economic growth that reached a record 9.4% in the year ended March.
Consumers have binged on loans to buy houses, cars, two-wheelers and other durables.
Now, financiers are witnessing a rise in defaults, prompting them to cut back on automobile finance, said TVS Motor’s Radhakrishnan.
“This is a learning process for banks,” he said. “You have to look at the creditworthiness of people you lend to.”
The industry slump may stretch into the next six months, said the executive, who expects TVS Motor sales in the year to March 2008 to rise to 1.7 million units, from 1.5 million in the previous year.