Auto companies amid slowdown in the sector might see another blow as the leading lender has proposed a higher collateral. In its recommendation, SBI proposes collateral of 25% over and above the inventory on issuance or increase of loans. In an earlier scenario, collateral would be the stock a dealer would buy from an automobile company against a letter extended to the bank by the manufacturing company.
This proposal is made to burden dealers to reduce their inventory holding. Since Diwali last year, the sector is reeling in extreme distress with low sales that has forced dealers to cut down on their staff as well as shut showrooms. Also, there is seen no immediate relief as sales during the last month also remained weak.
Nonetheless, in view of the current stress, SIAM deputy director in a report says that the time is just not right to put additional burden on auto players. "Inventory finance was already impacted when GST was introduced, and now with collateral, the cash-strapped dealerships will find it difficult to come out of the downturn", he added.