KOLKATA: Consumer finance companies are tightening terms fearing rising credit risk because of job losses and salary cuts due to the economy stalling in the wake of the coronavirus outbreak. They could rein in or stop zero down payment schemes as well as no-cost equated monthly instalment (EMI) plans for smartphones, television sets, refrigerators, washing machines and air-conditioners.
Retailers expect stricter credit norms to hit sales in an already subdued demand environment as the lockdown eases.
Manufacturers, which used to absorb the cost of interest subvention, are refusing to do so for low-margin products and long-tenure schemes, said people with knowledge of the matter.
Five senior industry executives told ET that leading non-banking finance companies (NBFCs) such as Bajaj Finserv and HDB Financial Services have indicated to brands that they wanted consumers to make down payments of some EMIs in advance after the default rate went up in April. Such initial payments will rise in proportion to the loan tenure.
No-cost EMIs may still be offered but largely for high-margin, premium products. The tenure for such schemes will be lower at 3-12 months unlike 15-18 months previously, executives said.
Brands are not keen on absorbing the interest cost for entry to mid-segment products and financing schemes beyond 12 months. Consumers may have to pay interest of up to 15% per annum.
Recently announced schemes by brands such as Samsung, Sony and OnePlus reflect these changes.
“As we understand, all leading consumer finance companies are relooking at their schemes after they are facing difficulties to recover past EMIs from customers,” said Kamal Nandi, president of the Consumer Electronics and Appliances Manufacturers Association and business head at Godrej Appliances. “For brands, considering the significant drop in revenue, there will be measures to cut cost wherever possible and we may not be able to absorb the entire interest component for all products unless the finance companies lower their cost.”
Home Credit India chief marketing and customer experience officer Marko Carevic said being able to make a down payment offers a positive outlook on the customer’s financial health and results in a lower EMI amount, easing pressure on the monthly budget.
But “I am also not sure if higher down payment will be possible keeping in mind that the lockdown has taken away the earning opportunity from our customers,” he said.
Japanese television maker Sony India managing director Sunil Nayyar said consumer finance, which used to account for 60% of overall purchases of electronics, may decline due to the tightening. “We expect these will be temporary measures and as cash flow improves, the old schemes should be back in next few months,” he said.
Vikas Agarwal, country head of smartphone maker OnePlus, said low-cost and no-cost EMI plans are a function of the brand and its business model, with tight resources redistributed as per customer requirement. He said there would be good offers for models just being launched and different ones for older devices.
Retailers fear the tightening of consumer financing may further dent consumption.
“Sales may feel a temporary impact on EMI scheme becoming less sweet. However consumers will eventually adapt,” said Pulkit Baid, director at leading electronics retail chain Great Eastern Retail. “Customers buying on credit card will find EMI schemes better as most card customers may have availed (of the) moratorium.” The Reserve Bank of India has allowed a three-month deferment of such payments to help people cope with financial setbacks during the lockdown.
Public sector banks such as Punjab National Bank and Indian Bank have however maintained the status quo. “No changes have been made in the policy as of now. The income source and sustainability of the prospective borrower will be taken into account definitely,” said Indian Bank chief executive Padmaja Chunduru.
Bajaj Finserv declined to comment since it is in the silent period, while IDFC First Bank and HDB Financial Services did not respond to queries
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