Going for a two-wheeler loan? Be ready to shell out more money for down payment and face a thorough background and credit check; lenders are now following strict practices
India is the second largest market in the world, in terms of volumes, for two-wheelers. However, the penetration level in the country remains very poor at about 6% to 7%. Despite favourable conditions, increasing input costs and higher interest rates are likely to restrict sales. The fresh, stricter norms, applied by some of the lenders to two-wheeler buyers, may also cast its shadow on volume growth.
Last month, some auto financiers, such as ICICI Bank Ltd, HDFC Ltd and Kotak Mahindra Bank raised interest rates by 25 basis points (bps) to 50 bps (100bps=1%). In India, most people buy new vehicles with the help of lenders. The credit purchase of the total auto market fell to 20% during FY09 from around 40%-50% in FY07.
Many lenders, following the slowdown during FY08, have suffered on account of high non-performing assets (NPAs). Similar was the case with dealers as well. Both lenders and dealers were offering two-wheelers at 0% interest rates and down payments touched rock-bottom rates of Rs99.
Increased NPAs forced lenders to take a re-look at two-wheeler financing. As a result, lenders have removed the direct selling agent (DSA) link from their line-up. Banks are now financing through their branch networks only and have stopped selling with aggressive tactics. Some lenders like ICICI Bank and GE Money—known for their aggressive marketing—are no longer present in the two-wheeler financing space.
As far as down payments are concerned, lenders are now asking for about 30% of the total cost of the vehicle. This is a major change, considering the fact that during the peak year of FY07 the same lenders were asking for a maximum of 10% as down payment. Not only that, some lenders have made it mandatory to conduct a thorough background and credit check of the customer.
With the withdrawal of 0% finance schemes and other aggressive dealer discounts and incentives, lenders have brought down their NPA risks. "All these measures have led to a slow but healthy recovery in financing. Over the last six to nine months, disbursals by public sector banks (PSBs) and non-banking finance companies (NBFCs) have gone up. As a result, we expect lenders to increase availability of finance to the two-wheeler space gradually," said Enam Securities Pvt Ltd, in a research report.
Over the next two years, industry volumes are expected to grow above the historical average rate, as improved consumer sentiment and availability of retail finance should boost urban demand. Further, rural market growth is expected to remain stable with higher income visibility and disposable income through non-farm sources and existing low two-wheeler penetration levels.
Most two-wheeler manufacturers have announced ambitious growth targets on the back of recent model launches. "In the medium term, we expect marginal impact from the smaller manufacturers on the overall competitive landscape. Impact of higher competition would be determined by action of the top two players in the motorcycle segment with combined domestic market share of about 79%," said Ambit Capital Pvt Ltd, in a report.
"In the current operating environment, wherein demand is expected to be relatively strong and cost increases are on the anvil, we expect the top two players to focus on protecting profitability rather than indulge in price wars to augment market share. Nevertheless, higher competitive intensity would result in higher spend on advertising and marketing, as new variant launches would be at frequent intervals," the brokerage added.
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New Delhi is seeking access to Japanese markets for agricultural products, pharmaceuticals and a basket of services
India and Japan today resumed talks on a free trade agreement (FTA) that will break duty and other barriers for bilateral investment and commerce in goods and services, reports PTI.
“India is seeking market access in the world’s second largest economy mainly for its agricultural products and pharmaceuticals. Besides, information technology, English-teaching and paramedical services are of interest to us,” a commerce ministry official said.
Officials from the two countries have already held over a dozen rounds of discussions without resolving basic differences, which are holding up the agreement.
The last meeting of the joint task force negotiating the Comprehensive Economic Partnership Agreement (CEPA) was held in October 2009 in Tokyo.
Though bilateral trade has more than doubled over the past four years to about $11 billion in 2008-09, it is considered very low compared to India’s merchandise engagement with China, the fastest growing economy of the world and Asia.
Trade between India and China was worth $42 billion in 2008-09 with aggressive exports of $32.50 billion to the Indian economy.
Japan's tariffs for a lot of agricultural commodities have remained high. Also, sectors such as oilseeds, dairy products, sugar and sugar products face higher tariffs there.
Non-tariff barriers like health standards are also a roadblock for Indian shipments.
“In terms of standards and technical regulations, Indian goods often find it difficult to meet Japanese requirements,” the official added.
For instance, agricultural products exported to Japan have to undergo a dual inspection and quarantine system, first by its ministry of agriculture, forestry and fisheries and then the health ministry.
In the three-day meeting, officials of both the countries will also deliberate on trade in services and investments, a key area of interest for India. Negotiations for the FTA began in January 2007.
Indian has already signed FTAs with the 10-nation Association of Southeast Asian Nations (ASEAN) bloc, besides South Korea and Sri Lanka.