Enough liquidity in banking system to fund auto sector: Uday Kotak

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Published: September 5, 2019 1:06 PM

Billionaire banker Uday Kotak said there is enough liquidity in the banking system to finance any form of vehicle despite the slowdown in the economy, while stressing on the need for manufacturers to have captive finance companies to boost demand.

Kotak believes while government spending can help boost demand, manufacturers also need to be more rationale about their product pricing at the time of slowdown in sales.

Billionaire banker Uday Kotak said there is enough liquidity in the banking system to finance any form of vehicle despite the slowdown in the economy, while stressing on 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 belive the idea of having captive finance companies as many manufacturers have, will help in fuelling demand,” the managing director of Kotak Mahindra Bank said at the SIAM annual convention on Wednesday.

His comments come at the time when the banks have been cautious in lending to the dealers to puchase stock on fears of default, as vehicle sales across categories have been subdued for around an year now, with inventory rising to above normal levels. Post the defaults by I&LFS and DHFL, NBFCs have been reeling with liquidity crunch and have trimmed their exposure to consumer and dealer financing. As a result, interest rate on loans have gone up, putting customers on the backfoot, further adding to the high cost pressures emanating from hike in insurance premium last year.

Kotak believes while government spending can help boost demand, manufacturers also need to be more rationale 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,” he said.

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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 has 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,” Kotak added.

He said banks have been depending on the credit score of individual and when there is a slowdown in the economy, credit score of borrower tend to have an impact. “Therefore the marginal borrower who was getting finance easily two years ago stops getting finance today. Banking system will be there to finance the auto sector subject to the condition that the money is returned back,” Kotak said.

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