Kick starting auto lending

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: the government leads the way, a logical follow through could be to strictly apply anti-pollution laws on the hundreds of lorry/truck operators throughout the country and remove from our roads, the decrepit vehicles, which clearly belong to another era if not the museum.

But wait a minute - where is all this cash going to come from? Given the poor financials of state transport corporations, as also the high incidence of NPAs in financing of private fleet operators, banks may be reluctant to finance either category. This can be overcome by legally binding both categories of borrowers to exclusive banking relationships either with a single bank or with a consortium of banks with compulsory escrowing of their cash flows. This would ensure 100% recovery for the lenders. To make it attractive to the borrowing parties, the manufacturers will need to give attractive freebies like discounts for bulk orders, knocking off dealer commissions through direct sales, discounts on spares and so on.

Banks, on their part, need to make the interest rates attractive and the EMIs can also be stretched more than normally done, because of the availability of escrow. The recent directive to banks to make credit available to NBFC's will, in turn, help finance purchases by private players, especially, individual operators.

Let's move on to the passenger car segment. Here again, the loss of jobs in the private sector, the high interest rates and the postponement of buying decisions, especially for luxuries and non-essentials, have caused a slump in this segment. Looking at the commercial side of this segment, the recent phasing out of 7,000 taxies in Mumbai does not seem to have spelt opportunity to lenders. The real problem in financing individual taxi-owners is the high incidence of NPAs and inability of lenders to either seize the vehicles or even trace the owners.

The Taximen's Union, which has been making a lot of noise about the loss of livelihood for the owners of the vehicles being phased out, needs to be pro-active by offering assistance to lenders for completion of KYC norms (Know Your Customer), arranging group guarantors or even undertaking responsibility for repayment of the loans.