NEW DELHI/MUMBAI :
Maruti Suzuki India Ltd, country’s largest vehicle manufacturer, on Wednesday signed a Memorandum of Understanding (MoU) with Federal Bank to improve finance options for its customers and dealers. Earlier this year, the New Delhi-based vehicle manufacturer had signed a similar agreement with Bank of Baroda.
While the carmaker looks to expand its customer base and open up new funding options for its dealer principals, Federal Bank looks to expand its presence across India along with growing its book value on auto loans.
According to Maruti Suzuki, almost 80% of all vehicles are financed in the auto industry, thereby making vehicle finance a key element in the capital-intensive business. Shashank Srivastava, Executive Director, Marketing and Sales, MSIL said that the market size of Maruti Suzuki’s retail finance is in excess of ₹75,000 crore alone.
Most private and public banks have tightened their credit disbursal norms after bankruptcy of IL&FS last year, which impacted the business of dealers and led to closure of showrooms and affected sales of vehicles. Automobile dealers depend on credit from banks and Non-banking Financial Companies (NBFCs) to meet their working capital needs.
“In August 2019, MSIL had inducted Federal Bank as an approved partner for dealer inventory funding. The latest tie-up for retail financing to customers will further offer comprehensive loan access facilities to Maruti Suzuki dealers as well as customers," a Maruti spokesperson said in a press release issued.
According to Shashank Srivastava, executive director, sales and marketing, Maruti Suzuki, Federal Bank’s extensive presence across India and strong presence in Kerala will help the company expand its customer base.
“This arrangement will help us offer end to end solution for dealers and retail banking customers via best in class technology enabled platform," Shyam Srinivasan, managing director and chief executive, Federal Bank.
With Kerala as its home state, for Federal Bank, which is stronger in the southern region, loans given out to the auto industry is less than 5% of its overall book value.
“However, as a percentage of incremental flow for the last 2 years, auto loans comprise 12% (of all loan disbursals). I think it is significant in times when there is so much noise around the slowdown. This could be the beginning of a very strategic partnership," he said.
“I believe that customers should have a choice of banks and they would prefer the one which makes it easy for them to get the loan. I am sure Federal Bank has bigger ambitions of growing beyond a few states and even Maruti Suzuki is looking to expand the business across the country," Srivastava told Mint.
According to Federal Bank officials, average ticket size of a loan to car dealer is in the range of ₹2.5 crore – 3 crore. “This, however, varies depending upon the scale of business," added Srinivasan.
Commenting on the rise of loan defaults lately seen across dealers, Srinivasan said that banks are now keenly looking for fraud-specific risks in dealer financing as credit-specific risks can be evaluated based on the track record of a party.
“The real nuance is to keep a watch on inventory management. So banks which are investing in fraud analytics and early warning systems deal with it better. As we are going into it, we are putting mechanisms in place," he added.
Shalini Warrier, COO and business head – retail at Federal Bank suggested that with deployment of end-to-end digital processing solutions, the bank is able to actively monitor the vehicle inventory and sale transactions at dealer level.
“Technology can enable early detection of fund diversion by a dealer. The banks have realized that they need to monitor the dealer inventory very closely. They have been very strict in terms of allotting more credit days beyond what is already prescribed to the dealers," Srivastava told this publication explaining the fast evolving lending norms.
Maruti Suzuki has a network of more than 3,100 outlets covering over 1,980 cities across the country.