The Hindu Business Line : Car cos push for loans on vehicles for commercial use

Sales drive
Vehicles sold for commercial purposes have a considerable share in the auto companies overall sales.
The sales of Bolero for commerical purposes have fallen from 40-45% to about 25% of M&M’s new car sales.
Fleet operations account for about 60% of General Motors’ Tavera sales, which have declined considerably.

Priyanka Vyas

New Delhi, May 4The reluctance among private sector banks to finance vehicles for commercial purposes has compelled auto companies to turn to their private financing arm or ink separate agreements.

Industry sources say that lending for vehicles used for commercial purpose was mainly done by private banks. But as many private banks stepped back, public sector banks such as Bank of Baroda and Corporation Bank have started lending under the department of ‘small and medium enterprises’.

Mahindra & Mahindra, for example, has inked agreements with Corporation Bank and Bank of Baroda to finance its vehicles. One of the agreements is to finance its vehicles to be sold for private purposes. The other agreement is for lending on vehicles that will be used either by a small fleet operators or small enterprises.

“Few of the public sector banks have begun extending finance on vehicles for commercial purpose as part of their lending portfolio for small and medium enterprises. This covers financing for about 2-4 vehicles for small businessmen,” Mr Arun Malhotra, Senior Vice-President (Sales), Automotive Sector, Mahindra & Mahindra, told Business Line.

Apart from public sector banks, companies are also resorting to their financing subsidiaries such as Tata Motors Finance, Tata Capital and Mahindra Finance.

“Because of a slowdown in particular sectors, delays are bound to happen in equated monthly instalments. But we are not taking a view of not lending to such segments completely as one has to go through the lending cycle,” said Mr Ramesh Iyer, Managing Director, Mahindra Finance.

Flexible norms

An official with Tata Motors Finance also said that despite an interest rate difference of 2-3 per cent between non-banking finance companies and banks, borrowers still prefer them. This is due to an easier documentation procedure and flexible eligibility norms.

“The moment a customer reveals at the dealership his intention to buy a vehicle for a commercial purpose, he is denied a loan. So even if it’s at a higher interest rate, borrowers seek loans,” said an executive with Tata Motors Finance.

Separate agreement

The companies felt the need for a separate agreement to finance vehicles for commercial purposes due to its considerable share in their overall sales.

In the case of Mahindra, about 40-45 per cent of Bolero sales were for commercial purposes a year ago. This has dropped to about 25 per cent of its new car sales. For General Motors, too, sales of its sports utility vehicle Tavera have fallen.

Fleet operations account for about 60 per cent of Tavera sales, said Mr P. Balendran, Vice-President (Corporate Affaires) of General Motors. Sales of the Tavera and Captiva have fallen to 15,603 units from 21,278 units in the previous fiscal.