Banks, Lenders reduce exposure to car dealers over defaults

According to a media report, lenders like non-banking financial companies (NBFCs) as well as both public and private sector banks are being more careful while lending to automobile dealers.

It is also reported that increasing bad debt in the auto sector has resulted in higher collateral requirement, at times as high as 100% of the loan amount, for inventory funding. Further, this credit line is being extended to dealers of select carmakers based on current outlook and growth.

The existing situation has been made worse by some dealers who have reportedly invested short term loans into long term assets and are now unable to make payments. Over the past 2 years, this has resulted in multiple showrooms being shutdown, especially in northern and western parts of India. It is reported that over 100 dealerships have shut down in the last 18 months till April 2019.

Banks have tightened their credit norms ever since Infrastructure Leasing & Financial Services Ltd (IFLS) went bankrupt. Another factor is said to be the increasing amount of bad loans in the auto sector.

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