The possibility of an increase in the usage of private vehicles has caught the fancy of automobile manufacturers and financiers alike. Yet, lenders want to be cautious about the kind of borrowers they acquire at a time when job losses and income destruction are the order of the day. Even as they lure potential car buyers with ‘buy-now-pay-later’ schemes, they are trying to make sure only those with their finances in order are able to get the benefit of these. So far, Maruti Suzuki India, Hyundai India and Mahindra & Mahindra have announced tie-ups with financiers such as HDFC Bank, ICICI Bank, Cholamandalam Finance and Mahindra Finance. Some other manufacturers — BMW India, Mercedes-Benz India and Tata Motors — are executing balloon EMI-like schemes through their group-owned financiers. The benefits on offer include zero down payment and three-month EMI waivers in some instances as also flexi, balloon and step-up EMI schemes, which allow borrowers to pay smaller instalments initially and larger ones later during the tenure of the loan.
For car buyers looking to avail such benefits, the attendant conditions are quite stringent. An HSBC report dated June 9 pointed out that the qualifying criteria can restrict their effectiveness. For instance, 100% on-road financing is mostly only available to salaried customers with high credit scores, on select high-ticket but less popular models and for customers with pre-approved bank funding offers. The three-month EMI job insurance cover is valid for 12 months from the date of purchase, excluding the initial three months, thereby substantially reducing the probability of risk crystallisation. The step-up EMI, flexi-EMI and balloon-EMI schemes may result in the EMI burden for the borrower increasing significantly during or towards the end of the loan tenure.
Lenders say the current high-risk environment necessitates tighter underwriting standards. Ramesh Iyer, vice chairman and managing director, Mahindra Finance, told FE that the scheme being offered by the lender is a way to help the customer by giving them a two-three-month moratorium. “The credit norms will be a little tighter because if someone wants to buy a car in this environment, we need to understand their source of margin money, how they plan to repay and what is their earning potential. The focus will be on good customers coming in,” he said. The obvious fallout of this could be these schemes focusing on the premium end of the market. Ashish Singhal, managing director, Experian Credit Information Company India, said, “They (the schemes) are targeting customers who would have the maximum probability of bouncing back and who will be able to pay over the longer tenure of the loan. Customers who have a higher income and a large discretionary spend will probably come in and buy these cars and the risk of delinquency will thus be lower.”
Consequently, the customer segment benefiting from these schemes might be too limited to make any meaningful impact on auto sales, HSBC said. “Most offers are: i) for limited period which coincides with the lockdown period, but more importantly, ii) targeted towards specific borrower segments such as women, doctors and employees with high credit scores, and iii) targeting specific models of various manufacturers,” HSBC analysts wrote, adding that financial institutions’ risk aversion in general remains high and capital is scarce.
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