Kotak said at a time when domestic demand is weak, manufacturers should instead focus more on exports which will help bridge the gap.
Uday Kotak, CEO of Kotak Mahindra Bank, said on Thursday there was enough liquidity in the banking system to finance any form of vehicle despite the slowdown in the economy. He stressed the need for manufacturers to have captive finance companies to boost demand.
“Banks are ready to finance any form of vehicle and there is enough liquidity today. However, I do believe the idea of having captive finance companies as many manufacturers have will help in fuelling demand,” Kotak said at the Siam annual convention on Thursday.
His comments came at a time when the banks have been cautious in lending to dealers to purchase stock on fears of default, as vehicle sales across categories have been subdued for around a year now, with inventory rising to above-normal levels.
Kotak believes while government spending can help boost demand, manufacturers also need to be more rational about their product pricing at the time of slowdown in sales. “I would recommend OEMs that ask what the country can do for us, but at the same time ask, what we can do for the country that can help in boosting demand.”
Passenger vehicle sales dropped by a sharp 34% year-on-year (y-o-y) in August, as major manufacturers, including Maruti Suzuki, Tata Motors and Mahindra & Mahindra (M&M), reported a high double-digit decline, falling for 13 out of the last 14 months. While two-wheeler volumes fell around 20% y-o-y in August, commercial vehicle sales plunged by a massive 40% y-o-y, as poor retail sales due to weak consumer demand have left dealers saddled with high inventory.
Kotak said at a time when domestic demand is weak, manufacturers should instead focus more on exports which will help bridge the gap. “A weaker rupee, at 72 plus helps in creating demand in the export market which the OEMs should tap.”
He said banks have been depending on the credit score of individual and when there is a slowdown in the economy, credit score of borrowers tends to have an impact. “Therefore, the marginal borrower who was getting finance easily two years ago does not get it today. The banking system will be there to finance the auto sector subject to the condition that the money is returned,” Kotak said.