Disbursements to auto sector under review, says Uday Kotak

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With the automobile industry facing a slowdown in demand, Kotak Mahindra Bank said that it is reviewing lending to the sector as it may have a significant impact on the economy.

"On the front-end, it is the sale of cars, viability of dealerships. On the supplier side, there is whole host of small and medium enterprises including auto ancillary," said Executive Vice-Chairman Uday Kotak. He was speaking after announcing the bank's fourth quarter results on April 30.

"One sector which we are watching very closely is the automobile industry. The passenger vehicle segment is going through a slowdown, so we have to watch the space," he added.

While the bank did not disclose its current exposure to the sector, senior officials said that it is well within the bank's internal sectoral cap of 2 percent of overall advances that stood at Rs 2.06 lakh crore as of March 2019. The bank witnessed credit growth of 21 percent in the financial year 2018-19 and expects to grow above 20 percent this year.

"The apparent reason seems to be the availability of financing," Kotak said, adding that banks need to be ready if the trend is reflecting any structural change in consumer behaviour.

Loan growth to the auto sector has taken a hit, data from Reserve Bank of India showed. In 2018-19, loans disbursed to vehicles, vehicle parts and transport equipment grew by 1.4 percent, as compared to a growth of 7 percent in the previous financial year.

Passenger vehicle sales in India rose just 2.7 percent in 2018-19 as weak customer sentiment led by liquidity crunch, high vehicle prices and uncertainty revolving forthcoming elections put brakes on the sales growth in the segment.