Private Banks are planning to close the loan segment for commercial and passenger vehicles as they have not received any clear guidelines from the Reserve Bank of India which prevents them from the repossession of the vehicles from defaulting borrowers.
The bankers communicated their views in a recent meeting with RBI and finance ministry officials in the presence of auto industry representatives. On the other hand the government and the banking regulator do not consider repossession as unlawful provided banks carry out this activity according to a set of procedure.
An anonymous finance ministry official informed, “Repossession of any mortgaged property is not illegal as misunderstood by some of the borrowers. The government is working out with the RBI and the auto industry to bring out guidelines, which will help end the ambiguity regarding recovery and repossession”.
In India more than 80% of all the vehicles are financed. According to industry estimates auto loan portfolio of all banks put together stands around Rs 1,00,000 crore.
The official stated, “The RBI will come up with detailed guidelines, empowering banks to auction repossessed vehicles”. He stated, “It may also include norms on getting repossessed vehicle back from the banks”. Even the public sector banks agreed to this that in the absence of proper repossession norms their business has got badly affected. But their better financial position has allowed them to continue offer auto loans in spite of risk involved.
Unwillingness of banks in offering auto loans can clearly be seen in the recent finance ministry data, which indicates that fresh sanctions of auto loans have come down for the 15 days ended March 13. The figures also depict the case of public sector banks. Fresh loans to auto sector have come down to Rs 767 crore for the fortnight ended March 13, from Rs 971 crore for the previous fortnight.
Since last few months’ private sector banks have been experiencing negative growth in their credit flow in almost all sectors, as per the data available with the RBI. Until now none of the private banks have, publicly disclosed their plans to stop offering auto loans.
An anonymous executive working with a Mumbai-based private bank stated, “We are lending on a case-to-case basis. The bank has to keep in mind the creditworthiness of the borrower. We are playing conservatively and going slow”. The matter has also been brought in front of the Cabinet Secretary for the discussion in his recent meeting with the chief of top bankers and industry representatives.
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