The Federation of Automobile Dealers Associations has sought the Reserve Bank of India's intervention against alleged delays by private banks in transmission of the interest rate cuts to automobile buyers.
In a letter to RBI Governor Sanjay Malhotra, the Federation of Automobile Dealers Associations (FADA) also called for a review of private banks' repo-rate pass-through lags in the auto-loan portfolio and issue corrective directives to ensure uniform 100 per cent transmission to auto borrowers.
"Under your leadership, the RBI has delivered the fastest series of policy-rate reductions in its history, a clear positive signal for the economy. Yet, this benefit is not fully visible in the auto-retail sector. While public-sector banks pass on repo-rate cuts to auto borrowers immediately, many private banks delay transmission on the pretext of internal cost-of-funds assessments," FADA Vice President Sai Giridhar said.
In order to ensure that private banks also transmit the benefit of the rate cuts, FADA urged the RBI to "monitor and enforce a strict, time-bound transmission of policy-rate changes across all banking institutions".
It also suggested making periodic, public disclosure of banks' cost-of-funds calculations to enhance transparency.
FADA also requested the central bank to "conduct a focused review of private banks' repo-rate pass-through lags in the auto-loan portfolio, and issue corrective directives to ensure uniform, 100 per cent transmission to auto borrowers".
The automotive dealers' body urged the RBI to issue clear guidelines to all banks to ensure uniform application of MSME lending benefits to eligible auto-retail businesses, alleging that in several instances, banks have not extended preferential interest rates to MSME-registered dealerships, although auto workshops, service centres and smaller dealerships are eligible for MSME registration under the Udyam framework.
The guidelines must also cover mandatory extension of concessional lending rates, priority sector classification and improved access to MSME-linked support schemes and grievance-redressal mechanisms, FADA said in the letter.
The association also called for extending the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to India's auto-retail channel, saying at present, authorised dealerships and workshops remain outside its ambit.
It also called for recalibrating risk weights and unlocking priority sector benefits, saying "banks today assign a 100 per cent risk weight to auto loans significantly higher than the 40 per cent applied to home loans even though vehicles serve as readily realisable collateral".
By reducing the risk weight on auto finance, lenders could stimulate an estimated 20 per cent growth in disbursements over the next five years, it added.
In parallel, bespoke inventory-and-workshop funding schemes would bolster dealer liquidity, ensuring showrooms and service centres have the working capital needed to meet rising customer demand, the letter noted.
Noting that direct incentive disbursements by banks to frontline dealership staff undermine dealership autonomy, FADA in the letter said, "We, therefore, urge the RBI to direct all banks to immediately cease direct payouts to dealership employees and strictly enforce routing of all incentives through authorised dealership accounts only".
In its letter, FADA also drew RBI's attention to boosting access to credit and EV finance, improved access to affordable credit, including lower interest rates for auto loans in Tier-2/3 towns and rural regions, among others.
