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.
