Maruti Suzuki to review captive finance company for easy loans

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While passenger car sales have remained weak for over a year now, banks have been cautious in lending to dealerships to buy stocks for fear of default as stocks hit above normal levels.

By Pritish Raj

Maruti Suzuki will explore the possibility of having a captive finance company, which will help reduce the dependence of its customers and dealers on banks and NBFCs, which have been cautious in lending after a year of decline demand for vehicles.

Shashank Srivastava, executive director of sales and marketing at Maruti Suzuki, said global manufacturers have captive finance companies that are successful. “We will look at the option and look at the specific India requirements,” Srivastava told FE.

While passenger car sales have remained weak for over a year now, banks have been cautious in lending to dealerships to buy stocks for fear of default as stocks hit above normal levels.

Maruti Suzuki is also in talks with banks to ease their strict lending standards, and has linked up with more such financial institutions to facilitate lending to dealers and individuals. “We are working on retail and dealer financing and have integrated new banks like Bank of Baroda and Federal Bank to increase our exposure. We also asked them not to insist on high guarantees and they accepted, ”Srivastava said.

Previously, banks would lend without asking for collateral, as dealer shares were considered collateral and repayment was made once those units were sold. Due to slowing demand, dealers are unable to repay loans they have taken to purchase shares from the manufacturer, prompting banks to ask for up to 50% collateral. About 80% of Maruti Suzuki cars are purchased on credit.

Two-wheeler manufacturers, including Hero MotoCorp, Bajaj Auto, and TVS Motor Company, have in-house finance companies. Among the four-wheeled vehicles, Tata Motors, Mahindra & Mahindra and Toyota have captive finance units.

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