Auto firms' finance subsidiaries rev up

The withdrawal of ICICI Bank from advancing loans at two-wheeler dealerships has forced automobile companies such as Bajaj Auto and Hero Honda – two of India’s biggest motorcycle manufacturers – to scout for other finance options.

Pune-based Bajaj Auto has decided to expand the reach of its financing company, Bajaj Auto Finance (BAFL), to assist sales. The company will now look to offer financing solutions even through the Bajaj Auto dealerships instead of limiting itself to its branches.

Hero Honda, the world’s largest two-wheeler company, has signalled that it will scale down its reliance on ICICI Bank to offer tailored financing solutions. The company has already signed a memorandum of understanding (MoU) with non-banking financial company (NBFC) Fullerton India to offer finance at its dealerships.

A Bajaj Auto executive said, “We will utilise the expertise of our finance company Bajaj Auto Finance to fill up the gap. We will expand our finance beyond branches to dealerships. We are well placed in the market and will not see much of an impact as a result of the pull-out by ICICI Bank.”

Fullerton’s tie-up with Hero Honda will enhance its presence in the smaller towns besides consolidating its presence in the traditional urban markets.

Fullerton’s direct presence in each of Hero Honda’s dealership will aid sales. The MoU will also help the NBFC to set up its counter in each of Hero Honda’s dealership and this will be an extension counter of the local branch of the company.

ICICI Bank’s withdrawal, which has been prompted by rising delinquency, will only worsen the situation for the two-wheeler industry, which was already reeling under the burden of high lending rates. Most of the public sector banks that raised interest rates are trying to cushion the impact by keeping their retail borrowers out of the ambit of the latest rate hike.

Most analysts tracking listed companies like Hero Honda, Bajaj Auto and TVS Motors have said sales forecast for the two-wheeler industry for the next few months looks very bleak as spiralling input costs and reducing availability of finance will put brakes on sales growth.