BackJapanese auto dealers, ancillary firms gorge on SBI loans
Two consecutive years of decline in vehicle sales due to an economic slowdown followed by the covid-19 pandemic has led to a substantial fall in revenues and net profit of dealers and components manufacturers
PremiumMUMBAI/ NEW DELHI: Dealers and suppliers to Japanese automakers made a beeline for availing affordable loans from State Bank of India (SBI), with the country's largest lender extinguishing a special kitty of $1 billion in just three months to December.
The bank saw an incredible response in the first round and has therefore taken another refinance facility of $1 billion from the Japan Bank for International Cooperation (JBIC), said a person aware of the development.
This is part of the Japanese government plans to help Suzuki Motor Corp, Toyota Motor Corp, Honda Motor Company, and others, in India, with easy access to liquidity. The agreement works as a refinance facility where SBI will give rupee loans and get it refinanced by claiming reimbursement from JBIC.
“The last refinance facility was fully drawn in a matter of three months. The new agreement is valid for a year from 1 January, but the bank might be able to utilize it much earlier, given the response last time round," said the person cited above.
Two consecutive years of decline in vehicle sales due to an economic slowdown followed by the covid-19 pandemic has led to a substantial fall in revenues and net profit of dealers and components manufacturers. Hence the agreement between SBI and JBIC has resulted in enhanced access to credit to dealers and suppliers to Japanese vehicles manufacturers over the past few months.
Most vendors, especially tier-two and three suppliers, faced severe cash crunch following the unlocking of economy beginning May last year. Auto dealers also experienced severe stress on their balance sheets since sales dropped abnormally from the second half of March to June due to lockdowns in different regions. In the last three years more than 300 dealers have shut shop as a result of low sales and financial mismanagement.
According to a Maruti dealer in Tamil Nadu, access to credit from SBI has definitely improved in the last few months and most dealers needed the funds to stay afloat since they entered the lockdown after a double-digit decline in FY20. The dealer spoke on condition of anonymity.
“This is also a part of the bilateral agreements between India and Japan to further improve the access to the Indian market for Japanese companies. Though the auto companies are well capitalised, it’s the dealers and suppliers who have been facing problems for a while," said a senior industry executive, also on condition of anonymity.
Email queries sent to Maruti Suzuki India Ltd, Honda Cars India Ltd, Toyota Kirloskar Motor India Ltd and Honda Motorcycle & Scooter India Ltd remained unanswered.
Dinesh Khara, chairman, SBI, in a statement on 31 March, had said that covid-19 crisis has delivered a significant shock to global trade, disrupting production lines and depressed global demand. “At a time when people are preferring personal mode of transport, this collaboration between SBI and JBIC will help the bank in extending loan facility to entire supply chain of Japanese automobile industry including suppliers, dealers and ultimately to the end users," he said.
Japanese vehicle manufacturers have more than 55% share in passenger vehicle sales in India while in two-wheelers account for over 30% of the total volumes. Maruti Suzuki and Honda Motorcycle & Scooter India are the most dominant players in each of the segments.
Auto dealers and suppliers have traditionally been dependent on SBI for short-term loans for working capital and stringent credit norms set by the bank in the last few years have impacted financials of these companies.
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