The Hindu Business Line : Banks act tough on 2-wheeler inventory funding

Two-wheeler companies say that banks are also adopting stringent conditions on the dealers to buy stocks, thereby limiting their ability to buy more vehicles from the companies and sell it in the market. Especially, with the coming festive season, two-wheeler companies have expressed that it could dampen sales unless dealers find their own ways to secure funds to buy stocks.

“Earlier, banks were taking stock of our inventory and insurance documents and based on that we could secure loans. But now they are asking for around 50-100 per cent collateral for buying inventory,” said a Hero Honda dealer who runs four showrooms in the city.

Explaining the rationale behind the change in financing requirement, an industry official said: “When banks were active in lending, they had an arrangement with the dealer under which funds were provided to buy stocks and in return a part of the inventory would be financed by those particular lending institutions at the retail level. Now when banks are exiting their retail presence or going slow, automatically their funds also come down, affecting their ability to lend to the dealers in large amounts.”

Spill-over effect

Manufacturers too acknowledged that when financing institutions take strict measures, it has spill over effect across all levels. Companies, such as Hero Honda and Honda Motorcycle and Scooters India say that its dealers had the wherewithal to manage funds and that they do not really feel such an attempt will hamper their business in the coming months.

“When banks go tough on lending, it impacts financing at all levels. Despite the tight financing situation over last year, we have been able to post robust growth numbers. Going forward, while the challenges on finance seem to be increasing, we expect our dealers to mobilise resources to capitalise on the festival opportunity,” said Mr Anil Dua, Vice-President, Salesand Marketing, Hero Honda.

Suzuki Motorcycles, the latest entrant in the domestic market, also said lending institutions recently increased their collateral requirement from the dealers.

“Banks are now asking dealers for collateral in the range of 50- 100 per cent depending on individual cases unlike earlier when they demanded 10-20 per cent,” said Mr Atul Gupta, Vice President, Sales and Marketing, Suzuki Motorcycles India.

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