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| Firms hope for revival on interest rate cut | |
| Swaraj Baggonkar / Mumbai November 11, 2008, 0:40 IST | |
Battered by the recent financial crunch, auto majors are hoping for a revival in sales by December as banks are expected to cut vehicle loan rates and also improve the liquidity in that portfolio. Rising interest rates charged by banks and other financial institutions, coupled with stringent lending norms, had made automobile purchases difficult in the last three months, during which the auto industry recorded negative growth.
In an attempt to shield the economy from the global financial crisis, the Reserve Bank of India (RBI) had slashed interest rates for the second time in two weeks on November 1. Executives from Maruti Suzuki, Hyundai, Tata Motors, Bajaj Auto and TVS Motor welcome the recent steps taken by RBI and hope that private as well as state-owned banks will cut auto rates and also increase availability of finance.
Besides revising the lending norms to avoid defaults on payment, banks are also shrinking the quantum of loan, forcing the buyers to increase the down payment required to fund the purchase.
Mayank Pareek, executive director (marketing and sales), Maruti Suzuki, said, "Interest rate movement will definitely have a positive impact on sales. It will be premature to comment on improvement in sales as a result. We will have to wait and see what steps do bank take and by when." More than reducing lending rates, auto companies feel that liquidity in the system will definitely help in reducing funding woes. Many financial institutions had opted to withdraw their auto financing portfolio from troubled regions like Uttar Pradesh, Bihar and Rajasthan following a steep rise in delinquency rates.
H S Goindi, head-sales (service and marketing) of Chennai-based TVS Motor, said, "Banks will definitely pass on the rate cut to the final customer, which is now just a matter of time. However, we believe that the amount of funding (availability of finance) has to increase. Sales have been lower in the festive month but the expected rate cut may spur up sales." Despite a slump in demand, the country's third largest two-wheeler maker has said it will go ahead with its planned launches.
A Mumbai-based analyst with Centrum Broking said, "Banks will definitely try to ease liquidity in the market. A major portion of the auto financing is done by public sector banks and also by non-banking finance companies up to a small extent. We expect the revival in December sales posting a positive growth, but November will be in the red."
Sagging sales in the first half of the current financial year has led to dismal growth of just 5 per cent in the car segment as against 13 per cent growth in the same period last year. Bike sales had gathered pace, selling more than 3 million units, with a growth of 12.5 per cent during the April-September period as against 2.7 million units sold in the same period the previous year.
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