Two wheeler financing becomes more rigid
By Vaibhav Aggarwal
Apr 8, 2010
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The Indian market holds the second position in the world for two wheelers in terms of volume. However, sales in the subcontinent remain held back owing to rising interest rates and input costs. The present tightening of financing norms is likely to reduce the growth in sales even further.

Interest rates on two wheelers were raised by 25 basis points by lenders such as ICICI Bank and HDFC Bank last month. The major reason for all this tightening has been the setback faced by lenders in the form of non performing assets by lenders during the financial meltdown in FY'08.

That was a time when lenders and dealers had started financing at 0% interest rates and down payment had reduced to as low as Rs. 99.

Rising NPAs thus forced lenders to restructure their vehicle financing norms. They have remover direct selling agent (DSA) link from their line up. Many big players have backed off from the two wheeler financing space.

Down payments now require up to 30% of the total cost of the vehicle. All this has enabled the financers to pull down their NPAs.

"All these measures have led to a slow but healthy recovery in financing. Over the last six to nine months, disbursals by public sector banks (PSBs) and non-banking finance companies (NBFCs) have gone up. As a result, we expect lenders to increase availability of finance to the two-wheeler space gradually," said Enam Securities Pvt Ltd, in a research report.

Industry volumes are expected to grow as per the historical average rate in the next two years. Rural market growth is also expected to remain stable. On this note, the financers have set their targets.

"In the medium term, we expect marginal impact from the smaller manufacturers on the overall competitive landscape. Impact of higher competition would be determined by action of the top two players in the motorcycle segment with combined domestic market share of about 79%," said Ambit Capital Pvt Ltd.


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