Auto dealers and customers may find it difficult to borrow from banks and non-bank financial institutions (NBFCs) as industry defaults could increase dramatically after the Reserve Bank of India lending moratorium is lifted (RBI).
“Dealers and customers both find it difficult to borrow, especially on the two-wheeler and passenger vehicle front, as NPA (non-performing assets) auto loans were already on the rise before Covid, which is expected to further increase. worsen in line with the extension of the moratorium, ”Ashwin Patil, analyst at LKP Securities, said in a report.
“Most of the automatic NBFCs which are placed in red zones like Mumbai, Pune etc. are not yet operating at full capacity, thus limiting their daily work and their proper functioning. The loans have become even more stringent given the extension of the moratorium to six months now, “he added.
On May 29, Mint reported that several passenger vehicle (PV) dealers saw an uncertain future as high levels of unsold inventory of vehicles meeting the Bharat Stage-VI (BS-VI) emission standard lead to an increase interest charges, which many of these dealerships may not be able to reimburse to banks.
Dealerships depend on banks and NBFCs for short-term capital needs, which include purchasing vehicles from manufacturers, and will struggle to meet their repayment commitments.
“The more than two month lockdown has led red zone dealers to bear the full 2.5 month inventory and will continue to build up even after the lockout is lifted as the fear factor will prevail and customers will gradually come back. . In some concessionaires in the orange zones, there are still around 90 to 95% of stocks. In green areas, dealers can only sell 20-25% of their inventory, ”Patil said in the report.
Passenger vehicle sales may decline in the range of 24% to 26% in fiscal 2021, according to Crisil Research, as customer affordability has dropped significantly due to the economic downturn induced by the coronavirus. With economic activity likely to suffer significantly, sales of commercial vehicles (CVs) will also decline by around 26% to 28% during the year.
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