SIAM may lower FY11-12 car sales growth forecast again in January

“During the Auto Expo next month, we are going to revise our sales projections for the fiscal... I feel the passenger car segment will again be downgraded,” SIAM senior director Sugato Sen told reporters

New Delhi: The Indian automobile industry is likely to see a downward revision of the passenger car sales growth forecast for 2011-12 for the third time this fiscal in January due to sluggish demand over the last few months, reports PTI.

According to the Society of Indian Automobile Manufacturers (SIAM), the passenger car segment may not even see single-digit growth in the current fiscal.

“During the Auto Expo next month, we are going to revise our sales projections for the fiscal... I feel the passenger car segment will again be downgraded,” SIAM senior director Sugato Sen told reporters here.

In October, SIAM had significantly lowered its passenger car sales growth forecast for 2011-12 to 2%-4%, the second revision after pegging it at 10%-12% in July, as against its projection of 16%-18% announced at the beginning of the current financial year.

In the April-November period this fiscal, domestic car sales declined by 3.53% to 12,19,509 units from 12,64,142 units in the year-ago period.

“We may not see a decline in car sales for the entire fiscal... The numbers may be just at the same level of last fiscal,” Mr Sen said.

After four consecutive months of decline, the domestic car segment witnessed a turnaround with 7% growth in sales in November this year on account of a marginal revival in demand, coupled with a low base.

However, sales in December are likely to be lower than the November numbers, said Mr Sen.

Car sales in India have been declining on a year-on-year basis since July, mainly due to the severe impact of labour issues on Maruti Suzuki India’s (MSI) production.

Sales registered their steepest monthly decline in nearly 11 years in October this year, tanking by 23.77% on account of a huge drop in output by MSI due to labour trouble, coupled with high interest rates and fuel prices.

Talking about the passenger vehicle segment, Mr Sen said: “It may see a growth of around 2%.”

In October, SIAM had estimated that the passenger vehicles segment would grow by 4%-6% this fiscal. It had earlier forecast 10%-12% growth in July, a stark downward revision from its initial projection of 16%-18% at the beginning of the fiscal.

It had said utility vehicle sales were likely to increase by 9%-11%, as against the estimate of 10%-12% announced earlier.

On total vehicles sales, SIAM had revised its projection marginally upward to 11%-14% for FY 11-12 from 11%-13% announced in July.

SIAM had revised its growth projection for the two-wheeler segment upward in October to 13%-15% from 12%-14% announced three months earlier, while the estimate for commercial vehicle sales was increased to 13%-15% from the earlier estimate of 12%-14% in July.

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Car sales bounce back after 4 months, post 7% jump in November

“Domestic car sales have bounced back as the base in November last year was low. Also, we have seen some revival of demand in last month,” SIAM senior director Sugato Sen said. However, sales in December are likely to be lower than in November, he added

New Delhi: Domestic passenger car sales witnessed a turnaround in November after four consecutive months of contraction, rising by 7% on the back of a marginal revival in demand, coupled with a low base, reports PTI.

According to figures released by the Society of Indian Automobile Manufacturers (SIAM) today, domestic passenger car sales stood at 1,71,131 units in November against 1,59,939 units in the same month last year.

“Domestic car sales have bounced back as the base in November last year was low. Also, we have seen some revival of demand in last month,” SIAM senior director Sugato Sen told reporters here.

However, sales in December are likely to be lower than in November, he said.

“The entry-level car segment, which is the biggest contributor to sales, has been hit most because of fuel hikes and rising interest rates. This is the most sensitive segment.

However, demand in the upper-end segment is comparatively doing well,” Mr Sen said.

Car sales in India have been declining on a year-on-year basis since July, mainly due to the severe impact of labour issues on the country’s largest car manufacturer Maruti Suzuki India’s (MSI) production.

Sales registered their steepest monthly decline in nearly 11 years in October this year, tanking by 23.77% on account of a huge drop in MSI’s output due to labour trouble, coupled with high interest rates and fuel prices.

MSI’s domestic sales declined in November as well, dipping by 16.59% to 73,078 units from 87,618 units in the same month last year, SIAM said.

However, the strong performance of other manufacturers made up for the slippage in MSI sales in November. Rival Hyundai Motor India posted a 10.72% growth in sales to 34,878 units in November, 2011, from 31,501 units in the same period last year.

Tata Motors also reported a jump in sales to 23,540 units from 12,234 units in the same period last year, translating into a 92.41% increase, SIAM added.

As per the figures released by SIAM, motorcycle sales in India grew by 22.67% in November to 8,69,070 units from 7,08,476 units in the corresponding month last year.

Market leader Hero MotoCorp's domestic sales increased by 27.02% to 4,85,381 units last month from 3,82,138 units in the same period last year.

In addition, Bajaj Auto saw a 18.24% rise in sales to 2,28,407 units from 1,93,174 units in the same period last year, as per the latest SIAM data.

However, TVS Motor Company posted a 10.45% fall in sales to 44,359 units last month from 49,534 units in the same month of 2010. Honda Motorcycle & Scooter India's (HMSI) sales went up by 40.94% to 72,120 units during the month under review from 51,171 units in November 2010.

SIAM said total scooter sales stood at 2,29,309 units in November, 2011, as against 1,65,610 units in the same month last year, a 38.46% increase.

Market leader HMSI posted sales of 1,17,850 units, up 72.60% from 68,278 units in the year-ago period, while TVS Motor Co saw a growth of 16.08% in scooter sales to 41,132 units from 35,433 units in November 2010.

In addition, Hero MotoCorp registered sales of 35,576 scooters, an increase of 30.95% from 27,168 units in the corresponding month last fiscal.

Total two-wheeler sales grew by 25.27% to 11,63,294 units last month from 9,28,660 units in November, 2010, as per the data.

Sales of commercial vehicles grew by 34.99% to 66,264 units during the month under review from 49,087 units in the year-ago period, SIAM said.

Light commercial vehicle sales rose by 48.01% during the month to 40,178 units from 27,145 units in November last year, it added.

Sales of medium and heavy commercial vehicles stood at 26,086 units in November, compared to 21,942 units in the same month last year, an 18.87% increase.

Domestic three-wheeler sales grew by 5.85% to 42,875 units during the month under review from 40,504 units in November 2010.

Total sales of vehicles across categories registered an increase of 22.22% to 14,89,714 units in November from 12,18,885 units in the same month last year, SIAM added.

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Priority sector lending to MFIs—need for adequate supervision

If the concerned RBI departments could not monitor five of the top 13 NBFC-MFIs that were supposed systemically (very) important, then, how can they be expected to set up supervisory mechanisms for several hundred MFIs as per the proposed Microfinance bill?

If equity was in some ways responsible for the burgeoning growth of Indian microfinance institutions (MFIs), the (huge) amount of (priority sector) debt leveraged by these 13 NBFC-MFIs (in top 14 MFIs) and other NBFC MFIs is another issue here.

Obviously this hugely increasing trend of priority sector funds being absorbed by NBFC-MFIs would be clear from the filings made by them to the Department of Non-Bank Supervision, RBI. In numerical terms, the growth of debt for MFIs, in terms of funds accessed from commercial banks and SIDBI, is given below and this growth is best described as phenomenal:

As can been be seen from the above table, bank loans outstanding with MFIs increased several fold after the Krishna crisis. Specifically, during the year before the 2010 Andhra Pradesh (AP) crisis, it increased phenomenally to about 6.40 times the loan outstanding of the base year (2006-07). Likewise, SIDBI loans outstanding with MFIs increased several fold after the Krishna crisis. Specifically, during the year before the 2010 AP crisis, it increased phenomenally to about 6.92 times the loan outstanding of the base year (2006-07). The steep growth of commercial bank and SIDBI loans outstanding with MFIs, over the years succeeding the Krishna crisis, is captured in Figure 1 below:

Figure 1: Commercial bank and SIDBI loans outstanding with MFIs during years 2006-2010

As N Srinivasan says in the 2010 State of Sector Report, “Bank loans to MFIs did not exhibit any overt signs of increased risk perceptions towards the microfinance sector. …Public sector banks have taken to MFI financing in a big way. Public sector banks (not including SIDBI) had an exposure of Rs4,737 crore to MFIs in comparison to private sector banks’ exposure of Rs 4,133 crore. Foreign banks had outstanding loans of Rs1,994 crore and FWWB had increased its exposure from Rs295 crore last year to Rs360 crore. SIDBI almost doubled its exposure to Rs3808 crores during the year. At this level SIDBI had a share of more than 25% of the market.”

And readers would recall that the top five AP-headquartered MFIs thrived on this burgeoning debt provided by SIDBI and commercial banks as evident from the table below:

Again, all of the above raises some very crucial questions for the RBI, the Department of Non-Bank Supervision and other RBI departments. A key issue here is whether or not the concerned departments (Department of Non-Bank Supervision, Department of Banking Operations Development and Department of Banking Supervision) felt alarmed about this burgeoning growth of priority sector lending (PSL) and other funds from SIDBI/Banks to NBFC MFIs in terms of the following aspects:

  • Which banks/DFIs are providing these PSL funds to various MFIs? What do the growth trends say? Has growth been unusually large in comparison to previous years? Is there any cause for alarm given the huge growth of (PSL and other) funds from banks and DFIs to MFIs? How has this growth in priority sector loans been absorbed by MFIs? Overall, what can be said with regard to due diligence by banks/DFIs in terms of sanctioning and disbursement processes with regard to priority sector funds and loans to MFIs?
  • How and where are the MFIs investing these priority sector loans and other funds? As microfinance assets? What other assets? Specifically, for what purposes are these PSL and other funds being used by the MFIs? Especially, did DFIs/banks look for any differences between the proposed and actual end use of priority sector funds by MFIs? Is there any reason to believe that these priority sector loan funds may be used for non-priority sector purposes? If so, what are the reasons and what are the ways of addressing this?
  •  Do returns by NBFC-MFIs show unusual trends with regard to microfinance asset growth? Is there any cause to believe that growth in micro-finance assets has occurred through multiple lending, over lending and/or ghost lending? Have any of the institutions provided interest free loans from their PSL funds to their promoter, senior management and/or board members? If so, for what purposes?
  •  Plus several other questions

Now, in summary, as this and other previous Moneylife articles (Lessons from the commercial micro-finance model in India; Dissecting the mechanics of growth in Indian microfinance; and The special category of NBFC MFIs: Lessons for the Department of Non-Bank Supervision, RBI) have shown, there are several unanswered aspects with regard to RBI’s role leading to the 2010 Indian microfinance crisis:

1.    Did the Department of Non-Bank Supervision miss any of these (significant) trends? If so, why? What lessons can be learnt from this with regard to supervisory arrangements in the future (especially those given in the proposed micro-finance bill)?
2.    If not, having spotted these happenings in the first place, why did it not take necessary corrective action? Again, what lessons can be learnt from this with regard to supervisory arrangements for the future (especially those given in the proposed microfinance bill)?
3.    If the concerned RBI departments could not monitor five of the top 13 NBFC-MFIs that were supposed systemically (very) important, then, how can they be expected to set up supervisory mechanisms for several hundred MFIs as per the proposed Microfinance bill?

And without sufficient supervision, none of this will work on the ground and therefore, it is important for the RBI, DNBS and other concerned departments to take stock of what happened and why from a regulatory/supervisory standpoint. That is certainly some food for thought and let me reiterate that India is a great country for legislation but the implementation record is rather poor in many cases. We certainly require a microfinance bill to provide legitimacy to the microfinance sector and that is a noble objective indeed but we cannot and must not stop with that. Rather than being a paper tiger, the bill should have the teeth and mechanisms to ensure orderly growth of the sector and for this, the most critical aspect is to look at the supervisory capacity of the RBI (and/or other organizations) and evaluate it to see what needs to be done to ensure ground level implementation. I do hope that the concerned people and powers that be, pay attention to these critical issues.

One last point—I have flagged issues and again, the objective here is not to undermine the capacity of concerned people or the good work being planned. The objective, solely, is to assist in enabling the development of better regulatory and supervisory mechanisms that can work on the ground towards the benefit of large numbers of low income people, who continue lack access to quality and affordable financial services at the grass-roots—a very necessary condition for the inclusive growth that India seeks to achieve.

(The writer has over two decades of grassroots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural/urban development and urban poverty alleviation/governance. He has worked extensively in Asia, Africa, North America and Europe with a wide range of stakeholders, from the private sector and academia to governments)

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