Active Stocks
Fri Apr 12 2024 15:57:45
  1. Tata Steel share price
  2. 163.50 -1.00%
  1. NTPC share price
  2. 362.00 -0.32%
  1. ITC share price
  2. 430.10 -1.56%
  1. HDFC Bank share price
  2. 1,518.90 -1.10%
  1. State Bank Of India share price
  2. 766.75 -1.57%
Business News/ Auto / NBFC liquidity crisis hits India’s auto industry hard
BackBack

NBFC liquidity crisis hits India’s auto industry hard

Auto industry lobby Siam has written to finance secretary A.N. Jha about the continued decline in sales from the lack of credit

More than half the vehicles sold in rural markets is financed by NBFCs. Photo: MintPremium
More than half the vehicles sold in rural markets is financed by NBFCs. Photo: Mint

New Delhi: Automakers, hit by the liquidity crisis among non banking financial companies (NBFCs), want the government to take measures to stem the reduction in credit for dealers and customers. The Society of Indian Automobile Manufacturers (Siam), the industry lobby, has written to finance secretary A.N. Jha about the continued decline in sales from the lack of credit. The NBFC crisis was triggered by the crisis at Infrastructure Lending and Financial Services Ltd (IL&FS).

Siam also sought an appointment with Jha to apprise him of the difficulties faced by the auto industry. Separately, Siam—along with the Federation of Automobile Dealers Associations (FADA)—has written to the Finance Industry Development Council, comprising representatives of NBFCs, before they called on the Reserve Bank of India (RBI) governor on Wednesday.

More than half the vehicles sold in rural markets is financed by NBFCs. With falling auto sales, dealers have been left with more inventory which means they need more working capital from NBFCs—which is either not available or comes with demands for more collateral.

According to a person directly involved with the process, the finance ministry needs to step in to aid the recovery of sales in the rural market.

“Siam wrote to the finance ministry since automakers have now become desperate. It’s a serious issue and needs to be resolved or some help should be extended. Otherwise there will be production cuts and people will lose their investments," said the person, requesting anonymity.

ALSO READ | Demand stability key for auto stock valuations to improve

According to Anil Sharma, associate director at markets research firm MarketsandMarkets Research Pvt. Ltd, the crisis in the auto industry is unprecedented. “The liquidity crisis in NBFCs is likely to have an impact on auto industry and in some quarters, we have already seen this. There are certain segments like passenger vehicles where customers have other alternatives but in commercial vehicles this will play out differently," he said.

Some NBFCs and banks are charging more interest for short-term loans. Dealers also depend on NBFCs for the funds to buy vehicles from manufacturers. According to the letter written by Siam to the finance secretary, 70% of two-wheeler sales and 60% of commercial vehicles sales are financed by NBFCs.

Mint has reviewed both the letters.

ALSO READ | Discounts fail to drive up auto sales in December

Siam, in its letter to the finance secretary, said NBFCs have exposure to vehicle financing in every category especially in the semi-urban and rural markets and the lack of credit has hit every stakeholder in the value chain. The industry lobby also pointed out that with the upfront payment of the goods and services tax dealers are facing a crunch for working capital loans.

The letter was sent to the finance secretary on Tuesday.

According to retail sales data released by FADA, passenger vehicle sales during the first three quarters of the current fiscal (April to December) declined 2% year-on-year to 1,917,750 units, while sales of two-wheelers increased by only 5% y-o-y to 11,071,352 units.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 11 Jan 2019, 02:48 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App