Drop in consumer loans slows durables sales

With the increase in inflation the budget of every household has come under burden and it has become difficult to take out any extra money for other purposes. Fearing a sharp rise in defaults banks and finance companies have reduced their lending. In turn this has slowdown the sales of finance-linked products.

According to K.R. Kim, Chief Executive officer and Vice-Chairman, Videocon the company in the past 6 months has registered a 10 per cent drop in sales its products linked with consumer financing, especially in the rural and semi-urban areas. He said, however company has recovered the drop in sales through their dealer finance scheme.

Even the consumer goods dealers have also confirmed a drop in sales. Some dealers, refused to be identified, claimed of about 20 per cent decline in sales while others maintained that demand had halved in the past one year.

According to V.Ramchandran, Director, Sales and Marketing LG India has registered a 4-5 per cent fall in the contribution of consumer finance sales. There has been decrease in the number of players who provide consumer financing, this in turn has resulted in the weakening of the durable category.

Steep jump in inflation is one of the reasons for banks to cut down consumer financing, and a consequent rise in interest rate, has generated fears of repayment capabilities according to OV Bundellu, Deputy managing director, IDBI bank the rising interest rates are responsible for the slowdown in consumer financing.

Ramchandran said about 10-20 per cent of the consumer durable industry's sales is directly related to the financing options. ''With the growth of organized retail, need for consumer financing becomes greater,'' he said.

Samsung India, had a growth of 30 per cent in the overall consumer durable sales in the first six months, has also seen a drop by 15 per cent in the sales of products linked with financing. According to company spokesperson some of the banks such as ICICI, Citifinance have withdrawn from consumer financing which has led to rapid fall in sales.

In the past year sales of higher-end products such as LCD televisions, was quite high has been worst hit. The segment has seen drop of 150 per cent in the past six months. According to Kamal Nandi, vice-president, sales and marketing Godrej Appliances the growth of frost-free refrigerators sales, have almost stagnated this year previously it was growing at 20 per cent having a similar impact on sales on entry-level goods.

To overcome the constriction, consumer durable companies are now coming up with their own financing schemes or helping dealers to tie up with banks.

Videocon has started dealer financing/channel financing scheme to boost up sales of their product range through this scheme company aims to make up for a decline in sales. Kim said manufacturers should come up with different schemes to refinance in order to boost sales.

Videocon is working out tie-up with select lenders including ICICI Bank and Standard Chartered Bank to provide financing to the dealers to push up sales.

According to Amit Gupta, Vice-President (sales), Videocon their tie-up with Standard Chartered and ICICI Bank is at the finalization stage, therefore it is expected to enable dealers and distributors to get funds easily at reasonable credit to purchase Videocon's products.

In the meantime, banks are refreshing consumer lending by imposing stricter norms. According to Nandan Shrivastav,General Manager, Retail Banking, Bank of Baroda bank has plans to give consumer loans to customers who have salaried accounts in their banks and have the necessary repayment power.

Deutsche Bank AG, India offers personal loans has also confirmed that there had been a slowdown in the market for these loans even though there are no specific schemes that caters to provision of loans for purchase of consumer durables.

However the banks are expecting lesser demand for purchase of consumer durable goods compared to the previous years in view of rising inflation and rising interest rates.