Automakers are concerned that retail sales may take a hit because of a cautious approach by banks and non-banking financial companies (NBFCs) towards extending credit for vehicle purchases.
These institutions play a major role in vehicle purchases since they offer tailor-made schemes to customers, making vehicle ownership affordable. As much as 80% of passenger vehicles purchased in India are financed. For two-wheelers, about 45-50% of vehicles are bought on loans.
With retail sales gradually improving towards pre-covid levels, some manufacturers, cutting across segments, are witnessing a drop in vehicle financing. This approach of financial institutions, according to these companies, is impeding growth in sales at a critical juncture for the auto industry.
“Retail finance should have acted as a tailwind but that has not happened. Bankers are considering customers who have taken moratorium for any loan unworthy of an auto loan at the moment. That is acting as a deterrent," said Y.S. Guleria, director, sales and marketing, Honda Motorcycle and Scooter India Ltd. “Had it not been for the cautious approach of the banks, we would have had better retails".
Though leading auto firms have in-house vehicle financing arms, banks and NBFCs still play a crucial role in rural and semi-urban markets.
When the lockdown was eased in May, Guleria said the share of retail finance was as much as seen during the pre-covid level but it declined by 5% in June and has been at the same level in the first three weeks of July.
“RBI took some steps to infuse liquidity in the market and it was expected that banks would lend more. So we were expecting retail finance to increase," he said.
Industry data showed that compared to 31 March, the loan books of several banks, including IndusInd Bank, Yes Bank, IDFC First Bank, Federal Bank, RBL Bank and Kotak Mahindra Bank, among others, shrank 2.3-7% in the June quarter. Since the end of March, the outstanding non-food credit of the banking sector has shrunk 1.1%, or by ₹1.14 trillion, to ₹102 trillion as on 3 July. Senior bankers said many lenders have turned conservative though fresh disbursals continue.
While the aggregate loans under moratorium have declined in the past two months, banks still have close to 10% of loans where repayments have been deferred. Prashant Kumar, chief executive, Yes Bank, said the bank has not stopped lending and is giving new loans to retail, small business and even corporate borrowers. “The only thing is disbursements are not more than repayments, and that is why there is a reduction on the overall loan side," Kumar said. Yes Bank’s total advances declined 4% sequentially to ₹1.64 trillion in the June quarter.
According to the Society of Indian Automobile Manufacturers (Siam), vehicle sales could decline in the range of 26% to 45%, depending on the segment. Hence, automakers have been trying to collaborate with banks to make it more affordable for customers to own vehicles at a time when job losses and a slowing economy have hit consumer sentiment.
Naveen Soni, senior vice-president, sales and service, Toyota Kirloskar Motor, said the company is seeing several changes at the financier’s end such as stricter norms in granting loans and charging a higher rate as a risk premium. “This cautious approach stems from the fact that financiers are considering customers who may have opted for optional moratoriums as unintentional defaulters and hence have altered their policies. We do have in-house financing options with the help of which we are able to neutralize such issues," Soni added.