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Government to Ease Auto Loan Exposure Norms

By Motortrend India Staff   |   17 February,2009

Eyeing the decline growth of the auto sector, Department of Banking is planning to introduce a new set of guidelines for banks and NBFCs (Non-Banking Financial Companies) in order to increase their exposure to auto loans.

The Society of Indian Automobile Manufacturers (SIAM), representatives of the banks as well as NBFCs had met the Joint Secretary (Banking), Mr. Amitabh Verma, last week to discuss the formulation of the guidelines.

Once the guidelines are made, the same will be sent to Indian Banks Association who will either use it as their code of conduct or take the view of the Reserve Bank of India. The sources said that the entire process is expected to complete this month.

The two factors hindering the banks and NBFCs from increasing the exposure for auto loans in the present scenario are repossession of vehicles in case of default and legal hassles involved in bounced EMIs. They have informed these issues to the committee formed by the government to hold talks with SIAM, Banks, and NBFCs under the chairmanship of Mr. Amitabh Verma.

The committee noticed that the banks are taking longer time for processing loan applications. The rejection rate of applications has increased to 40 percent from 10 percent. The percentage of funding has reduced among various classes of vehicles.

Senior Vice President (Sales & Marketing) of Hyundai India, Mr. Arvind Saxena observed that the repossession of vehicles and bounced cheques are the reasons for the rejection of car loans. He said that if the guideline addresses these issues, the banks would regain their interest in auto loan business which will help revive sales numbers in the auto sector.

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