[adhd92]

It seems that the lack of financing is going to further hit automotive sales!

One indicator may be worrying for India’s automakers even as sales rebound after April’s complete washout—lenders have turned stricter. Around 80% of owners, according to an auto dealers' lobby, bought cars, motorcycles and scooters on borrowed money prior to the pandemic. But as economic activity collapsed during the harshest lockdowns in the world, millions are estimated to have either lost job


Read more at: https://www.bloombergquint.com/busin...-auto-industry
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[GTO]

Yikes! You had better be thick-skinned if you are part of the car industry. It's just one blow after another.

But you cannot blame the banks. After all, they have to protect their assets and the fact is, the ability of EMI payments for most people has suffered due to job losses, job insecurity or drop in business volumes (all the entrepreneurs I know are complaining).

Over & above, I am sure banks & NBFCs have seen a rise in non-performing assets (i.e. defaulters) due to Covid-19, and money has become tighter too (e.g. lesser fixed deposits coming in). In such a situation, it's each man for himself!

I expect another 1 or 2 car makers to exit India or merge with someone else. It'll happen.

[AZT]

Below was the most interesting part. As of now auto sales have been on par with last year so was this all just pent up demand or a sustained recovery is what the coming months should show us.

About 800 kilometres east in Prayagraj, Uttar Pradesh, Ankit Srivastava, who runs two dealerships of Hero MotoCorp, was already worried about demand. Lack of financing has snuffed out any hope of a revival for him.

Sales tripled year-on-year in June because of pent-up demand as the economy reopened, while July and August have been on a par with last year, he said. While driving volumes hasn’t been easy, stricter financing will kill 25-30% demand, he said.

...

The problem is not just with retail financing. At least six dealers from different parts of the country that BloombergQuint spoke with said they too were finding it difficult to raise funds for buying inventory.

A survey of 19 dealerships by ICRA Ltd. threw up similar findings. Almost 74% of the participants said wholesale funding from banks and non-banking financial companies has tightened, the ratings agency said in its report. 26% said the rejection rate has increased for retail financing.

[adhd92]

Absolutely!

Can hardly blame the lenders. India has one of the worst NPA problems in the world, which has been there even prior to the pandemic.

This would be another bullet in the arm for the industry and specially dealerships.

I am speculating that the government is not pushing more money in the market because they know the Tsunami of NPAs is going to majorly hit the PSUs and they would require refinancing.

But on the other side, if they don't push money, it could get much worse.

What a difficult situation to be in!

[Chetan_Rao]

Note from Support:

Folks, please stick to the topic and avoid going off on tangents. Thanks.

[V.Narayan]

If you are a small to medium sized organization looking for term finance and you have a first class track record or even almost first class then banks and NBFCs are more than willing to lend working capital and term finance to you. The operative phrase is 'first class track record'. One of the organizations I am closely associated with {turnover about Rs 35 to 40 crores p.a.} raised Rs 5.2 crores in May in the middle of the lock down all things being done via video. Another organization of similar size that I am closely associated with raised Rs 4.6 crores in September from an NBFC. Fact is some enterprises see debt as an escape route and do not make the right effort to maintain their credit rating. In both cases the lender was an existing one who had seen the timely repayment track over a few years.

I sympathize with dealers facing a cash crunch. Only a fellow entrepreneur can understand the gravity of the anxiety of such a situation. Sharing the above to provide a perspective from the other side.

[CARDEEP]

The NPA problem in Auto & Ancillary industry is bad. The manufacturers can easily discount the invoices, practically meaning they can collect the cash in normal cycle.

But, it's the dealers who often struggle with bad credit, which is often because they too want swift turnaround of sales to cash. Also, they are not prudent in cash management & more often resort to building up personal assets/ show-off & apply short cuts, which hamper business more than anything.

Now, bankers who are facing problems with dealer collection of these discounted invoices have started getting back to drawing board, often resorting to hefty charges & changes in sales invoices discounting agreement with manufacturers to save own face & business. For them the manufacturers have appointed a dealer, & if a dealer is bad manufacturer has to own up. It's a lengthy process, which bis affecting smaller players.

Add to this, there is elephant in room, invoice cancellations, or simply said inflating sales numbers at periodic intervals for making good "headlines + reports/ targets". Now these are also contested by bankers as there cancellations are repetitive in nature & need to be filtered out. Bankers are already struggling with data & scrutiny overload, especially in recent years, so tend to back off on case of slightest of doubt. Rural credit situation is really bad in India.

However, this is problem with smaller players & bigger ones often sail through (case Maruti-Suzuki, Hyundai-Kia, Tata, M&M & Toyota-Kirloskar).

I would say this is like periodic corrections in property prices that we witness, & the Darwin's Theory clearly applies here.

[ramnaresh_2000]

My 2 cents

I am actually happy that they are going to tighten the loans process. The reason behind my comments is below, this was prior to CIBIL score era

• I freshly landed back from UK and in search of jobs in Hyderabad
• I stayed with a friend in a rented room which had a small slum area near it
• The houses were typical slum houses, just a shed on footpath with no bathrooms or anything
• I used to use my 6 years old Pulsar 150 to roam around and I noticed something odd
• Each slum house had a brand new bike parked outside, some had Yamaha R15 and few had brand new Pulsars
• I had no clue how they were able to manage such bikes and live in a slum, I should admit I was a bit jealous and curious at the same time
• After discussion with my friend who works in bank recovery department I came to know harsh truth
• Sales people tie up with bank officials and issue bike loans to anyone and everyone
• They just pay down payment and take the bike home
• They never pay any EMI's
• As the documents are fake, the loan recovery agents never find the actual house or owner
• They lodge a police complaint and the police track down the vehicle
• The whole process takes 12-18 months
• The purchaser just hands over the vehicle and claims innocence
• As they are very poor people, the bank doesn't proceed with civil case as it is waste of time and money for bank as well
• Bank recovers remaining money by auctioning the bike

This is a huge loss for banks, waste of money, man power time etc. Greedy sales people are the only one gained in this process. This all stopped after launching CIBIL score, all defaulters are blacklisted and will never get a loan from bank (unless and until they manage to change their identity and documents like in Hollywood movies). Even if they manage to get a loan, it will be at a very high interest rate.

We Indians exploit every system and process. We are to blame and we suffer during such pandemic periods. No matter what rules, policies, laws government makes, we find a loop hole and exploit it to the fullest.

Banks neither rewards honest people who never misses EMI's. They just push more and more products to such people like ULIP's, FD's, Personal Loans, Upgrade bank account to "Gold" account and charge amount yearly etc.

Instead banks can reward by providing them with better interest rates. I never missed my Car EMI from last 3.5 years and when I reached out to my bank to enquire about used car loans interest rate they quoted me 14%, another bank which had tie up with dealer quoted me 11.25% on used car loan based on my CIBIL score. This seriously infuriated me further.

[AirbusCapt]

Bankers are donkeys here. If you don't open up for business (small business, retail loans) due fear of NPA, you will sooner than later shut down. Sitting on piles of deposits with no earnings is not good for any bank.
And that foolish strategy of trying to call the well off for more loans will not help, for the next year or so most of the financially comfortable people will maintain a holding orbit so to speak. New purchases, new loans etc will be a small trickle if any.
Q4 2020/Q1/Q2 of 2021 will see a lot of firing/salary cuts in the banking industry.