Mumbai: State Bank of India (SBI) has tightened lending terms dramatically for auto dealerships, according to a source and an internal memo seen by Reuters, seeking to reduce its exposure to risk from a sector in the midst of a sharp downturn.
The shadow banking crisis that began to unfold in India during mid-2018 has deepened this year. The liquidity crunch in non-bank financing, higher insurance costs and rises in taxation have served to increase the pressure on the car sector, with monthly auto sales falling by 17-20% since April.
Monthly passenger vehicle sales in June fell by the biggest margin in 18 years. In one internal memo for financing dealers selling vehicles made by Hyundai Motor Co’s India unit, SBI said it is revising the lending terms because of “growing stress” in the carmaker’s portfolio.
Similar memos have been sent to dealerships for all other brands, said a senior SBI official aware of the matter, though Reuters has not seen memos relating to other carmakers.
As part of the revised terms, the country’s largest bank by assets has decided to halt lending to dealers of Hyundai Motor India unless they provide a minimum of 25% collateral, it said in the memo.
Hyundai dealers that had already received loans from the bank will also have to provide security of between 25% and 50% of the loan amount, SBI said in the memo dated March 27 and signed by the chief general manager for supply chain financing.
Japanese carmaker Suzuki Motor Corp’s Indian business, Maruti Suzuki, dominates with a 50% share while rivals including Toyota, Volkswagen, Ford and Nissan also produce and sell cars in the country.
