India recovers from car sales slowdown in next year

As per the recent study conducted by the research firm Deloitte, the slowing down car sales in the Indian market will bounce back again in year 2012, as the car loan interest rates and inflations in the country are expected to decrease in the next year.
In its report – Driving through BRIC markets, Lessons for the Indian market – Deloitte said that a number of poor microeconomic factors have affected the growth of the passenger vehicle segment in recent months including the likes of skyrocketing fuel prices, high auto loan interest rates and restrained growth of real disposable income.
Since the deregulation in year 2010, there has been a jump of 34 percent in the fuel prices in the Indian market. On the other hand, the interest rates on new car loan have surged to 13 -14 percent.
As per a report given by Mr. Kumar Kandaswami, "The current slowdown is not here to stay as the fundamentals of car sales growth namely urbanization and car density are still very attractive."
The report further elaborates, "Car sales have declined, and registering de-growth since July 2011, compared with the previous year and is not expected to recover unless the macroeconomic factors become attractive. In FY 2011-12, car sales are expected to grow by a meager 2-3 per cent against 30 per cent in 2010."

PSU Banks approve credit proposals up to 400 crore

The government has quadrupled the limits on loans that a bank's internal committee can approve, a move that could quicken credit clearance at 26 state-run banks, including the Bank of Baroda and PNB.
The government has directed banks to set up a credit approval committee - comprising chairman, executive directors and three chief general managers who handle credit, finance and risk management functions. This group can approve credit proposals up to 400 crore. Currently, any loan above 100 crore has to be vetted by the management committee of the board, which met once a month, or 20 days.
"The new initiative will help in facilitating credit disbursement at a much faster pace," said KR Kamath, CMD of PNB. "This would take care of a substantial part of the lending business."
The chairman, through a credit approval committee, can now lend up to 400 crore to an individual borrower. Under the old regime, a management committee of the board, which included a RBI nominee and two independent directors appointed by rotation, the bank's chairman and managing director and executive directors, took these decisions.
This limit is applicable on Category 'A' banks with a business of 3 lakh crore, while smaller public sector banks can use the same structure to approve loans up to 250 crore. If a loan under consideration is higher than these limits, it would be taken to the management board.
"The government decision would enable the management to take operational decision and the board could focus on policy matters," said S Ravi, shareholder director at Union Bank.
Over the past few years, the project size has increased many folds and the restriction of 100 crore was seriously affecting the lending business, said one of the person quoted above. "At least 60-70% of the loan size is above 100 crore, which used to be referred to MCB. Now less than 10% cases would be referred to MCB," he added.
"Though a credit approval committee has replaced the board's management committee, the two are significantly different. The MCB has outside members such as RBI nominee and independent directors; the new committee comprises two EDs and chief general managers, who report to the CMD," said another retired chief of a nationalised bank.
SBI, the biggest, already follows such a practice where loans of up to 500 crore are approved by such a committee and loans bigger than this are referred to the board's committee.

Demand of Car loan Increased in Nov 2011

The unyielding attack on interest rates in a bid to rein in runaway prices is elastic results: the demand for vehicle loans has come down. The growth rate of Car loan volumes have almost halved so far in 2011-12 compared to the same period last fiscal,RBI.
While vehicle loans disbursed by banks in April to October 2010 rose by 13%, in the current year the pace has come down to just 7% this fiscal year. Interestingly, apart from the plunging auto sales, another factor for this decline is a rise in cash-down purchases.
Among car and utility vehicle buyers, customers opting for vehicle finance went down from 80-84% to 70-74%, according to Pawan Goenka, president, Mahindra & Mahindra.
“Another trend is people increasing their down payment. The LTV (loan-to-value) ratio came down from 85% to 75%, in some cases 50:50,” he said. The increased cost of finance added up to the overall cost of vehicles, prompting many aspiring car buyers to postpone their purchases.
“There is a decline in demand for vehicles and it impacted car loan as well. Hike in interest rate also is a crucial factor,” said Jairam Sridharan, senior vice president and head of consumer lending, Axis Bank. Auto loans account for 13% of Axis Bank’s retail lending.
RBI has hiked the repo rate 13 times by a cumulative 3.5 percentage points since March.
Maruti still lags, but auto sales rise 7% in November
After four months of decline, domestic car sales in India grew by 7% in November despite market leader Maruti, which controls almost half of the industry volumes, posting a near-20% decline in sales during the month.
Second-placed Hyundai Motor, homegrown Tata Motors, Toyota, General Motors, Ford and Volkswagen all grew handsomely during the month, but industry body Society of Indian Automobile Manufacturers (SIAM) warned that December could see sales drop again and a full revival will only happen in 2012.
“Sales would fall again in December though it would not be as drastic as in the last four months,” said Sugato Sen, director, SIAM. “Sales growth would only happen from January onwards but even then it would not be enough to reach our target of 2-4% for the entire fiscal.”
So far this year, car sales have declined by 3.5% as a mix of high interest rates, fuel prices and runaway inflation have dampened consumer sentiment.
There is however, no hint of a slowdown in two-wheeler sales in the country, which grew by over 25% during the month. The segment that accounts for a lion's share of overall industry volumes, ensured that total automobile sales in the country grew by 22% during the month at 1,489,714 units.