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The pact with SBI follows Japan’s decision to ease liquidity pressure on its homegrown automakers such as Suzuki Motor Corp, Toyota Motor Corp and Honda Motor Co.  (Photo: Mint)
The pact with SBI follows Japan’s decision to ease liquidity pressure on its homegrown automakers such as Suzuki Motor Corp, Toyota Motor Corp and Honda Motor Co. (Photo: Mint)

SBI’s loan pact to ease auto suppliers’ woes

Dealers may get access to short- and long-term credit at affordable rates

NEW DELHI/MUMBAI : Dealers and parts suppliers to Japanese automakers in India may be able access short- and long-term credit at affordable rates from the State Bank of India Ltd (SBI) following a recent loan agreement with financial institutions from Japan, said three people aware of the developments.

This opening of a special credit window by India’s largest lender will immensely benefit the entire supply chain and retail ecosystem of Japanese automakers, the people cited above said, requesting anonymity. Auto dealers and suppliers have been at the receiving end of a tightening of credit supply norms by financial institutions who became risk-averse amid rising defaults and weak automobile sales in the past two years. The pandemic and prolonged slowdown in India has added to the woes of the vendors and dealers.

The pact with SBI follows the Japanese government’s decision to ease the liquidity pressure on its homegrown automakers such as Suzuki Motor Corp, Toyota Motor Corp and Honda Motor Co. Last year, when Prime Minister Narendra Modi visited Japan, senior bureaucrats from the two nations deliberated on steps to increase Japanese investments in India. The agreements with SBI is part of the same initiative, said the people cited above.

SBI on 28 October signed a $1 billion loan agreement with Japan Bank for International Cooperation (JBIC) and other financial institutions to offer credit to Japanese automakers and their suppliers and dealers in India. The tightening of lending norms led companies such as Maruti Suzuki India Ltd to negotiate with lenders to offer loans to dealers at affordable rates.

A senior SBI official said the fund will be used to refinance loans related to Japanese carmakers in manufacturing, supply chain, dealers and to retail borrowers for buying a vehicle in India. “SBI will take that particular pool of assets and claim reimbursement from JBIC. The bank will refinance some of its existing loans and some fresh loans. It will give a rupee loan and get a dollar loan through the refinance facility," said the official. “SBI’s exposure to Japanese carmakers and the connected ecosystem is $4-5 billion."

Easier availability of credit is crucial as sluggish automobile sales have forced the closing of a total of about 300 dealers across brands in the past two years. The second person said similar agreements could be signed with other banks in future.

According to Miyamoto Shingo, economic counsellor, Japanese Embassy, this loan will help boost demand and help the Indian economy bounce back. “The loan is a long term on, offered at attractive interest rates, aimed at providing working capital to auto component manufacturing companies and others. This is the provision of working capital in difficult times, and has been done in consultation with Indian finance ministry," added Shingo.

Emailed queries sent to Maruti Suzuki, Honda Cars India Ltd, Honda Motorcycle and Scooter India Ltd and Toyota Kirloskar Motor India Pvt Ltd remained unanswered.

(Elizabeth Roche contributed to the story)

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