NEWS & ADVICE : CAR LOANS
RBI to meet the chiefs of auto industry
By Vaibhav Aggarwal
Dec 17, 2008
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The Reserve Bank of India (RBI) is likely to meet the major automobile manufacturers in order to chalk out measures that will help in overcoming credit problem in the sector.

The auto industry has been facing severe troubles amid the slowdown and therefore to ease conditions in the sector, RBI is expected to meet the chiefs of automobile companies towards the end of this week. The two parties will also decide on repossession guidelines of vehicles in case of a default.

Dilip Chenoy, Director General of Society of Indian Automobile Manufacturers said, "We will seek some assistance for capital required for capacity expansions and working capital and also ask guidelines to be relaxed so that public sector banks can also hire agents. Besides we will urge RBI to quickly formulate guidelines for repossession of vehicles during defaults without which the whole process of financing becomes untenable."

As per the guidelines of Supreme Court, RBI had asked banks to discontinue the use of recovery agents in cases of defaults that were reported earlier this year. As a result private lenders became reluctant in their lending and since then the industry started facing relentless troubles.

Although the private sector has been hesitant in financing vehicles in the current scenario, public sector banks are offering 100% financing for the cars and two wheelers. However these PSU banks are prohibited to employ agents and this is proving to be hindrance in their process of financing. Therefore there will also be a review on the existing guidelines that ban public sector banks to employ agents.

An official from Maruti said, "Private Banks have their own agents who are present at the dealership and that is the way auto financing is done traditionally. Unless public sector banks function in a similar format, their entry into the segment will be limited and consumers will not be benefited."

The lack of retail finance in the auto industry has adversely affected the sales figure. In November the automobiles sales dipped by nearly 18% on year-on-year basis.

Last week RBI had also held a meeting with small and medium enterprises (SMEs) and thereby declared a package for the 40-lakh strong small and micro units in the country which are currently reeling under the impact of high interest costs.

 


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