Nano to become costlier by Rs9,000 from next month

Mumbai: Tata Motors is taking a minor price increase on the Nano, the world’s cheapest car. The hike is effective from 1November 2010, to partially neutralise the steep increase in input costs in the last two years. The average increase is about Rs9000 (ex-showrooms), with prices varying from city to city and model to model.

 As of now, Tata Motors has announced open sales of the Tata Nano in the states of Kerala (since August 2010) and Karnataka, Maharashtra, Uttar Pradesh and West Bengal (since October 2010).

 The company has tied up with 39 banks, non-banking finance companies (NBFCs), co-operative and gramin banks to offer customers with loans for purchasing the Tata Nano at attractive rates of interest. More such arrangements are in process. As a result of these tie-ups, the Tata Nano can be owned at an equated monthly instalment (EMI) of less than Rs. 3000.



Plan Panel holds talks with industry ministry on 12th Plan

New Delhi, Oct 29 (PTI) The Planning Commission held discussions with the officials of the industry ministry on the Twelfth Five Year Plan (2012-17), which is likely to aim at 10% annual economic growth, reports PTI.

Planning Commission member Arun Maira in his meeting with industry ministry officials is believed to have sought their views on the structure of the next Plan which will come into force from 2012-13.

Maira also emphasized on greater participation of apex chambers in preparation of the 'Approach Paper', which will lay out the major targets, key challenges in meeting them, and make the growth more inclusive.

"While industry chambers have always been active in providing suggestions towards government policies, this time the Planning Commission is expecting even greater participation from them," an official said.

Preparation of the Plan is a herculean task and the process starts about 15-18 months ahead of its commencement.

Once the Approach Paper is prepared, it requires approval of the Cabinet and the National Development Council, which includes chief ministers of all states.

"It (Approach Paper) provides the architecture, which is fleshed out in detail in the Plan itself," the Planning Commission said.

With an aim at developing an "inclusive and participative approach" to the process, the Commission has decided that the Approach Paper will be evolved through a web-based consultative process in which all interested persons can participate.

"We have developed a multi-dimensional strategy matrix, which indicates some of the key areas we need to explore," it said.


Retail lending shows signs of recovery with in-house sourcing and collections

Indian retail lending is picking up momentum again after past mistakes. According to IDFC, the segment is likely to grow at a 29% CAGR over FY10-FY12 to a whopping Rs4.2 lakh crore

India's retail loan segment is making a comeback of sorts with a changed business model and limited competition. The retail loan segment, which grew at a compounded annual growth rate (CAGR) of 50% between FY2003 to FY2008, almost went bust with fierce competition, overdependence on outsiders and regulatory changes.

This also led to exits or scaling down of operations by a number of players like ABN Amro, GE Money, Bajaj Finance, Shriram City Finance, Fullerton India and FamilyCredit.

IDFC Securities Ltd, in a research report said, "With fewer players focused on niches, pricing power seems to have returned to the financiers - who could now significantly curtail subventions paid to manufacturers and dealers. Mechanics of sourcing and collections, which are now handled in-house, have also tilted the risk-reward equation in favour of lenders. Importantly, emergence of credit bureaus like CIBIL and Experian have been a key enabler in protecting the quality of assets as lenders can now 'choose' their borrowers based on credit history.

"Going forward, we expect that the 'fresh-in-mind' outcome of cutthroat competition would prompt players to maintain a rational stance on pricing even as new players - albeit few in numbers - enter the business," the brokerage added.

During FY03, lenders used to earn a net profit of 1.7% to 3.6% for products like mortgages, car loans, two-wheeler loans, personal loans and credit cards.

 Source: IDFC Securities Ltd

However, with the emergence of cutthroat competition and price wars, the yields on consumer assets, especially for two-wheeler, personal and car loans fell 300 to 400 basis points (bps) over FY03 to FY07. Also during the so-called boom period between FY03 to FY08, lenders were using direct selling agents (DSAs) to offer the bulk of their loans.

Unfortunately, the lure of hefty commissions of up to 3% of the assets sourced made the DSAs to go in for more business without strict quality checks. This coupled with regulatory forbearance, which restricted forceful recoveries, and the cyclical economic slowdown triggered wilful defaults.

Some players who burned their fingers during this period decided to exit the retail loan segment while a few opted for the consolidation route. Globally, manufacturers subsidise lenders to reduce end-consumer borrowing costs, but Indian lenders were following the exact opposite policy.

However, with the emergence of financial recovery and credit bureaus, the retail lenders are making a comeback. "Financiers now realise that inherent product profitability leaves no room for manufacturer or dealer subventions and therefore after FY09 and later, one can find that the dealer payouts have almost disappeared across segments," IDFC said.

Similarly, the proportion of retail loans secured through DSAs and direct marketing agents (DMAs) has come off significantly to around 1% of the assets secured. In addition, retail loan lenders now prefer to source as well as collect through their own employees instead of DSAs and DMAs. This branch-banking model seems to be helping lenders to protect asset quality.

In addition, the emergence of credit bureaus, like CIBIL and Experian who provide complete information on a borrower is also helping retail lenders to choose the right customer. CIBIL, the country's largest credit bureau, covers around 16 crore loan accounts and around 9.5 crore customers, with contributions from about 255 members, including banks and non-banking financial companies (NBFCs).

India, which is home to one of the world's youngest populations, offers a perfect ground for expansion of retail loans. The country has around 48 crore people under the age of 40 years. However, the penetration of retail assets so far has remained low - at around 30%. This untapped demand coupled with the rebound in profitability for financiers, is expected to spur a boom in retail finance in the coming years.

"On the back of improving income demographics and thereby higher affordability, penetration of retail assets has been on the rise. We expect annual disbursements in the segment to accelerate to 29% CAGR over FY10-FY12 to about Rs4.2 lakh crore in FY12," the brokerage said.

According to the IDFC report, key beneficiaries of the recovery in retail financing would be Bajaj FinServ Ltd, Housing Development Finance Corp (HDFC), HDFC Bank, ICICI Bank, IndusInd Bank, LIC Housing Finance, Mahindra and Mahindra Financial Services Ltd, Shriram City Union Finance, Shriram Transport Finance and State Bank of India.


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