RBI tightening on unsecured loans: White goods firms fear margin squeeze

Consumer durables retailers and manufacturers may end up bearing the cost of the Reserve Bank of India’s (RBI’s) tightening on easy personal loans, as their margins are expected to be impacted by higher borrowing costs.
 

During the recently passed festival season, consumer durables companies started offering longer tenure loans, zero down payments, and zero interest on a wider assortment of products than ever before, making the products more affordable.
 

While 18- and 24-month easy monthly instalment (EMI) options were available earlier, companies offered them only on select products; now, they are being extended to a larger section of products. While the consumer won’t bear the brunt of the RBI’s move, companies still await clarity but expect their margins to take some hit.
 

“Finance-led purchases account for 40 per cent of total industry sales and are a growing proportion. Hence, any move that hikes interest rates has an adverse impact on the industry, and the scale will depend on the extent of the interest hike. We will be monitoring the same closely,” Kamal Nandi, business head and executive vice-president of Godrej Appliances, part of Godrej & Boyce, told Business Standard.
 

Five years ago, the number of white goods sold through easy financing options stood at 20 per cent, which has now increased as the number of players in consumer finance has also increased from two to around 14-15 players.
 

“This will have an impact on the margins and bottom line of brands as we absorb the cost of finance,” said Avneet Singh Marwah, chief executive officer of Super Plastronics, the brand licensee of Kodak, Thomson, Blaupunkt, and White-Westinghouse in India.

He explained that the trend of moving from the entry segment to the mid and premium segments has emerged in the sector due to easy finance options, and the RBI should consider this move as it will impact the industry.
 

An executive from a retail chain said that stakeholders will absorb the cost, but there is a possibility that the terms of financing to the consumer could change, and a processing fee could be added or the upfront payment may go up.

The executive explained that interest rates are already high, and this will have an impact. It won’t be passed on to the consumer directly as they are used to zero-interest EMIs in the category.

Nilesh Gupta, managing director of the consumer durables retail chain Vijay Sales, also believes that margins could take a hit, but it won’t be that impactful.

“It will lead to an increase in the cost of funds. Manufacturers and retailers will end up shelling more, but it won’t be much, but there needs to be clarity on the same,” Gupta said.

During the festival season, Vijay Sales saw an increase in products offered on better finance options double compared to last year. Last year, the retail chain saw around 15 per cent of goods sold on longer tenures, which now stood at 30 per cent.

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- 40% of consumer appliances sold on EMI

- Terms of financing could change as firms may add processing fees or change tenure of EMIs
-  Shift from entry segment to mid and premium segments attributed to easy finance options in the sector

-  Easier payment options pushed premiumisation for the sector

-  Five years ago, white goods sold through easy financing options were 20% of total