Lenders shying from extending auto loans, points out FADA

While releasing the monthly vehicle registration data for July 2020, the Federation of Automobile Dealers Associations said that lenders are still having a cautious approach towards funding auto retail despite being flush with high liquidity.

Hyderabad: The auto retail industry in India, which has been battered by growth slowdown and lockdowns imposed after the Covid-19 outbreak in the country, on Monday said that demand revival in the sector is getting delayed as banks and non-banking financial institutions (NBFCs) are shying away from extending auto loans, especially in segments of commercial vehicles, three-wheelers and two-wheelers.

While releasing the monthly vehicle registration data for July 2020, the Federation of Automobile Dealers Associations (FADA), the apex national body of automobile retail industry in India, said that lenders are still having a cautious approach towards funding auto retail despite being flush with high liquidity.

“Vehicle funding percentage has fallen by 10-15% in many segments, increasing the initial contribution beyond reach of many customers, despite having the intent to buy,” said Ashish Harsharaj Kale, president, FADA.

FADA said vehicle registration tanked by 36% in July to 1.14 million compared with 1.8 million a year ago. Among the most hit segments were three-wheelers and commercial vehicles, which saw registrations decline by a whopping 74% and 72%, respectively, during the month.

The two-wheeler segment also showed a decline of 37.5% in registrations, while passenger vehicles segment posted a drop of 25.2%. Tractor registrations, meanwhile, continued the positive momentum, showing a growth of 37.24% in July.

“Liquidity is not a problem, yet funding has become very tight. It’s difficult to get vehicles financed for customers who have opted for moratorium,” FADA vice-president Vinkesh Gulati told ETV Bharat. “Banks are still risk-averse,” he added.

K. Srinivas Rao, Professor at Institute of Insurance and Risk Management (IIRM), however, believes that auto loan customers may not be tapping the right set of lenders for such loans and are, therefore, facing funding issues.

Talking to ETV Bharat, he said: “After the Covid pandemic, banks are under a lot of pressure to meet targets set by Reserve Bank of India (mainly under the Rs 3 lakh crore MSME credit guarantee scheme). Moreover, branches are working on less staff. So big banks currently are interested in large-ticket loans that are safer… they won’t be focussing on small-ticket advances right now.”

“Borrowers should approach appropriate lenders for smaller auto loans. For instance, regional rural banks, urban cooperative banks or small finance banks would be happy to entertain such customers,” added Rao.

Outlook for August

Despite disappointing registration numbers in July, FADA expects things to improve from August, but only if there are “no further lockdowns, especially in auto manufacturing hubs”.

“August brings with itself the beginning of long festival season. With Onam and Ganesh Chaturthi in next few days, we hope that the auto industry will start its recovery journey in a linear manner,” Kale said.

However, FADA maintained that the full-year outlook for vehicle registrations continues to remain negative with a projected de-growth in retail sales in the range of 15-35% across various segments, except tractors which looks set to clock a positive annual growth.

Given the scenario, FADA urged the government to announce demand-boosting policies to ensure speedier revival of the auto sector. “Auto industry eagerly awaits incentive-based scrappage policy and this will be the fillip to medium and heavy commercial vehicles sales,” said Kale.

FADA represents over 15,000 automobile dealers having 25,000 dealerships including 30 associations of automobile dealers at the regional, state and city levels accounting for 90 per cent of market share.

(ETV Bharat Report)