The Indian automotive market recorded its second straight decline in volumes last financial year. Companies lending to this sector have also felt the heat equally. But bucking the trend is Tata Motors Finance (TMF), the captive financing arm of Tata Motors, by rolling out a series of counter measures.
The Indian automotive market has been under a slowdown for two consecutive years. How has Tata Motors Finance navigated through this period?
Last couple of years witnessed the worst kind of recession in automobile industry with over capacity led falling sales, discount war and piling inventory amidst overall slowdown in the economy. The problem aggravated further due to a hike in cost of ownership on account of the increase in third party insurance, upward revision of road and registration tax and BS IV to BVI transition. From March 2020, the real economy, which was already slowing down came to a grinding halt hit by the pandemic and NBFC liquidity concerns impacting credit flow.
TMF has made systematic and conscious shift in its core strategy in the last couple of years. The impetus was moving from demand creation to value creation by implementing fit for future profit centric organization structure, augmenting our physical and digital reach, enhancing customer experience and offering bespoke financing solutions to transporters. We have developed a range of allied products such as inventory financing, Factoring and bill discounting facilities for TML dealer and vendors, collateral backed transporter loans, vehicle repair and maintenance loans, fuel financing and balance sheet correction solutions. This has helped in winning customer loyalty.
Further, we have strengthened our balance sheet by shoring up liquidity and we are sufficiently capitalized to mitigate any adverse impact arising from economic shocks.
What has been the impact of COVID-19 on the financial services industry in India?
COVID-19 has emerged as a black swan event, with significant macroeconomic impact both globally and in India. The financial services business is tightly coupled with economic activities. Covid-19 and the subsequent lockdown have disrupted financial services industry in India at multiple levels: lack of mobility and economic activity have stalled disbursements and deteriorated collections. Demand is facing an acute slowdown as consumers are conserving cash and prioritizing health and safety over everything else.
The government and RBI has taken several measures to bolster the economy in the past four months by infusing liquidity and bringing down interest rates. Two rounds of repayment moratorium to borrowers for a total 6 months were announced by RBI starting March20. With a significant percentage of borrowers opting for moratorium, liquidity of lenders and NBFCs in particular have become stressed. Because of the repayment holiday, there is an apprehension about the repayment habit of borrowers after their coming out of moratorium. Lack of repayment track and uncertainty around business viability is expected to impact new lending till such time normalcy returns. Financial services industry is having to shore up capital to ensure adequate liquidity in the face of below normal collections and to absorb losses that could arise from a deterioration in asset quality.
What is the resultant impact on the auto sector lending?
With most businesses still in recovery mode from the impact of COVID-19, there is uncertainty around vehicle utilization and viability of borrowers. Further, for customers who have opted for moratorium, repayment behaviour is not ascertainable beginning of March. This has resulted in auto sector lending remaining muted.
Do you see any positives?
Cross sell opportunities for financing health cover products have improved. Social distancing norms have forced financiers to go digital and embrace remote and efficient ways of credit assessment and funding. It has also made companies look seriously at adopting Work from Home as the new normal. Companies are optimising cost structures and building efficiencies which will benefit in the long run. The government has been extremely forthcoming to help MSME customers with newer guaranteed lines of lending. We expect used vehicle financing business to gather momentum in view of rising cost of acquisition for new BSVI vehicles and higher operating costs.
On the passenger vehicles side, consumers have increase interest in buying cars in the wake of social distancing for avoiding public transport. OEMs and financiers have partnered to offer attractive consumer schemes like Step-up EMI, 6 month EMI holiday, asset buyback assurances etc. to shore up demand. This has led to month on month improvement in vehicle sales in the last two to three months.
What are the changes you foresee in the availability of liquidity, rates for NBFC?
The regulatory measures announced by the RBI have ensured that there is significant liquidity in the system today. Liquidity is finding its way to lending institutions and NBFCs which are well-capitalized, having a diversified pool of solvent assets, robust collection machinery and backed by strong management. It is important to understand that NBFCs play a key role in the revival of the economy, especially the MSME sector. More efforts have to be made to ensure that liquidity is transmitted with correct pricing to all segments (basis asset class, AUM and reach) of NBFCs so that their customers in the real economy can benefit.
TMF has successfully managed to raise sufficient funds at competitive rates both on the shorter and longer duration. We believe the same trend will continue till December and from January-February we expect the securitisation refinancing market to also come back.
Lending landscape and consumer behaviour are changing every day, your thoughts and TMF’s readiness with changing times
Lending business is undergoing a massive transformation, especially in developing economies that are likely to become data rich before being economically rich. India has been leading the charge in this transformation with its government initiatives like Aadhaar, Bharat Bill Payment System, India Stack, GSTN, E-Nach, Video KYC and consent architecture to create a data-rich footprint for citizens and reducing the operational cost for provisioning financial products. Banks and NBFCs need a new-age lending system that is agile, scalable and secure. This can help financial institutions enhance analytics based decisioning using customer’s digital footprint and provide flexibility to customize and personalize loan products tailored to the specific needs of a wide range of customers.
On the other hand, consumer’s behaviour is also undergoing a big change as consumers are preferring experience over ownership, product and services to be delivered digitally and completely contactless with convenience. Information asymmetry between buyer and seller is almost gone and this is the biggest thing that will drive used vehicle business in times to come.
Digitisation journey of TMF has started two years back. We have revamped our loan origination system and through application programming interfaces connected our platform with all the data bureaus, quite a few fintech engines and government portals. This has helped in better and faster credit assessment, digital processing of loans with least human intervention and better customer experience.
What are your plans for next three years?
In next three years, our core vision and purpose of enabling economic success and keeping customers for life will be driven by (a) financial innovation and creativity through leading edge solution offerings to our customers, (b) embodying highest standard of business ethics in all that we do, and (c) contributing to the cause of nation building through income and job creation in commercial vehicle segment. Our differentiated humane approach for our people will ensure we have the right culture to attract the right people for making TMF an admirable financial institution.
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