'Unfair Bank Practices Hurting Dealers', FADA's Appeal to RBI

In a first-of-its-kind effort to strengthen India's auto retail industry, the Federation of Automobile Dealers Associations (FADA) has made a formal representation to the Reserve Bank of India (RBI). The July 25, 2025, letter bearing RBI Governor Sanjay Malhotra's signature outlines major issues auto retailers, particularly Micro, Small and Medium Enterprises (MSMEs), face and recommends regulatory changes to enhance credit availability, digitalisation, and ease of business.

Also Read: Auto Sales June 2025: FADA Notes 4.84% Growth in the Indian Auto Sector

The Economic Scale of Auto Retail

FADA highlighted the industry's vast contribution to the Indian economy, pointing out that auto retail had produced around ₹9 lakh crore in FY25, with an estimated growth of 8–10 per cent in FY26. The ecosystem comprises more than 15,000 dealerships and supports nearly five million employees, who are mostly from local areas. The industry also pays ₹3.3 lakh crore in GST and ₹88,000 crore in road taxes per year.

In spite of its size and job potential, FADA contended that the auto retail industry, most notably its MSME members, continues to struggle in accessing fair financing and policy consideration.

Also Read: Bajaj Maintains Its Lead Over TVS And Ola With More E-2W Sales: FADA

Major Issues Raised

The letter outlines some of the areas where FADA feels intervention by the RBI and the concerned ministries is imperative:

1. Lacking Repo Rate Transmission

Though RBI has undertaken bold rate cuts, FADA has noted that several private sector banks are not passing these gains to auto consumers on time. The association asked RBI to impose time-bound transmission and require public disclosure of cost-of-funds to enhance transparency.

2. Erratic MSME Lending Gains

Though most dealerships are MSMEs in terms of the Udyam framework, FADA observed inconsistencies in the implementation of MSME benefits like reduced interest rates. It appealed to the RBI to release guidelines that would provide uniform implementation of such benefits by all banks.

3. Inclusion Under CGTMS

FADA asked auto dealerships and workshops to become eligible under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) so that collateral-free lending could be done. It had the potential to free up capital for working capital, inventory funding, and upgradation of infrastructure.

4. Issues regarding Direct Commission Payments by Banks

Certain public sector banks are said to be going around dealerships and crediting sales commissions to dealership personnel directly. FADA called this a breach of corporate governance principles and requested RBI to step in and pass all incentives through approved dealership accounts.

5. Rationalised Risk Weights and Rural Lending Support

With auto loans already having a 100 per cent risk weight, FADA proposed bringing them closer to house loans (40 per cent) to increase the volume of disbursements. It also proposed recognising rural vehicle loans under agriculture-related Priority Sector Lending, considering their multi-purpose use in agriculture. 

6. Excessive Transaction Charges on Digital Payments

FADA also expressed concern at merchant discount rates of up to 2.25 per cent on card transactions that undercut dealership profit margins and discourage digital payments. It suggested the RBI put a cap on such rates, as is done for zero charges on UPI and RuPay transactions.

7. EV Finance and Affordable Credit in Rural Areas

According to India's green mobility objectives, FADA requested low-EMI EV long-tenor loan products and interest subsidies. It also requested wider access to credit in Tier-3/2 towns and rural economies, as well as covering first-time buyers under Priority Sector Lending guidelines.

8. Working Capital Assistance and Tax Rationalisation

The letter urged the banks to provide competitive working capital and inventory finance. It also pleaded for GST rationalisation on used cars so as to help formalisation in the second-hand segment.

9. Establishment of a Special Auto-Retail Working Group

FADA suggested establishing a special working group under the RBI to monitor sectoral credit flows and address policy issues beforehand.

Call for Broader Government Coordination

FADA concluded by calling RBI to also put the representation before other key ministries, viz., the Ministry of Heavy Industries, the Ministry of Finance, and the Ministry of Road Transport & Highways, to ensure coordinated policy action. It emphasised that addressing these issues would enable double-digit growth in the sector's contribution to GDP and drive job creation in India.