EMIs: Sales of cars, consumer durables, and electronics are being driven by longer-tenure EMIs (equated monthly installments), buyback guarantees, and other similar instruments. According to The Economic Times (ET), easy loan programs are becoming more popular as consumers want to purchase the higher trim levels of these products and their prices rise.
However, brands warned that they might have to give up their margin if borrowing costs increased for these types of consumer loans, according to the report. This is particularly true for no-cost EMIs, where the manufacturers either pay the interest on their own or in conjunction with retailers. Remarkably, the Reserve Bank of India (RBI) raised the risk weight on consumer credit, which includes bank loans to non-banking financial companies (NBFCs) and credit card receivables, in order to address the concern about the sharp increase in unsecured consumer loans.
Due to the RBI’s most recent decision, banks and non-banking entities may need to increase their capital reserves, which may lead to higher lending rates. Satish NS, President of Haier India, told ET, “So, any increase in borrowing cost will have to be borne by the brands or they may pass it by marginally increasing product prices.”
Two in Five cars sold were above Rs 10 lakh
The need for longer-term EMIs is increasing along with consumer preference for purchasing more expensive, higher-end car models. Additionally linked to the phenomenon is a higher loan-to-value (LTV) ratio.
According to Nikhil Ranade, head of retail finance at Landmark Group, a luxury and premium automotive retail chain, “most customers prefer it to be anywhere between 90-95 percent post-Covid, but post-Covid, the LTV used to be around 90 percent.”
According to Ranade, an increasing number of clients are choosing loan terms between 60 and 84 months, as evidenced by the fact that the average loan tenure has increased from 50 to roughly 56–58 months.
A growing number of electronic appliance EMI-based purchases
According to the ET report, similar to cars, electronic products such as refrigerators, smartphones, TVs, and other appliances saw growth this year of 5-7 percentage points, the highest in at least five years. According to the report, which quoted industry experts, brands have notably started offering free EMI options, even for entry-level products and small stores.
33% of all transactions on smartphones are free EMI-based purchases, according to data from Counterpoint Research cited in the ET report. One year ago, it was 28%. For smartphones that cost more than Rs 10,000, companies are now providing these options. These discounts applied only to mobile phones purchased for Rs 20,000 or more prior to last year.
