As auto sales skid, manufacturers & NBFCs brainstorm on revival plans

The Hindu Business Life
May 10,2019

KR Srivats The Finance Industry Development Council (FIDC), a representative body of NBFCs, has assured the Society of Indian Automobile Manufacturers (SIAM) that the NBFCs will “not turn risk averse” towards the automobile sector, although several of them are facing multiple challenges of “liquidity crunch” and new regulatory hurdles.
“We have given them an assurance that per se there is no change in stance on our intent to fund automobiles. The current situation is tight for us which is manifesting in our lower disbursements to the automobile sector also,” Raman Aggarwal, Chairman, FIDC, told BusinessLine here after the meeting with SIAM officials.
The main purpose of the meeting was to discuss threadbare the reasons behind the sharp decline in automobile sales in the country in the recent months.
“Our meeting focused on whether the primary reason for drastic drop in vehicle sales is lack of demand or is it also due to lack of credit coupled with higher cost of credit,” Aggarwal said.
He said that FIDC not only acknowledged the decline in NBFC disbursements to automobile sector, but also explained the reasons for this trend.
SIAM had also highlighted the trend of fall in “wholesale funding” of auto dealerships.

IL&FS fiasco

FIDC is learnt to have conveyed to SIAM that NBFCs have been faced with multiple challenges of “liquidity crunch (post-IL&FS blow-out)” and new RBI requirements.
It was pointed out that NBFCs are heavily reliant on banking system for funding and post the IL&FS blow-out there has been severe reluctance on part of the banking system to extend funding support.

RBI norms

Moreover, NBFCs are not able to take advantage of securitisation in a big way because some of the guideline changes sought with RBI is yet to be accepted by the banking regulator.
To add fuel to the fire, the RBI has, with effect from April 1, this year mandated that companies including NBFCs which have over ₹150 crore funding from the banking system should have at least 40 per cent in the form of working capital loans.
“Its not only credit crunch, even the new RBI working capital norms are a big challenge for NBFCs. The new working capital norm will have a negative impact as NBFCs have to rejig so as to conform to 40 per cent norm. In the next couple of months, this will have to go up to 60 per cent,” Aggarwal said.
In the December quarter last year, disbursements by NBFCs — a key player in auto financing — had declined 25 per cent as regards financing of commercial vehicles.

Why no leasing?

SIAM officials were also keen to understand why ‘leasing’ as an activity is not taking off in the country.
Taxation issues, including high tax deducted at source (TDS) on lease rentals and high GST rate, are seen as reasons behind the poor interest on ‘leasing’, it is learnt.

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