Informist, Saturday, Jul. 26, 2025

MUMBAI – In a first, senior executives of the Federation of Automobile Dealers Associations met Reserve Bank of India Governor Sanjay Malhotra. The officials asked the central bank to implement better transmission of rate cuts to the end-user, especially for the automobile segment, the federation said in a press release Saturday.

The federation submitted a detailed representation on ease of doing business in auto retail to the governor. Malhotra said he would look into the issues discussed and would take up some matters internally and where required, in coordination with concerned central government ministries, it said.

"Under your leadership, the RBI has delivered the fastest series of policy-rate reductions in its history--a clear positive signal for the economy," the letter to the governor said. "Yet, this benefit is not fully visible in the auto-retail sector."

FADA asked that the central bank monitor and enforce a time-bound transmission of policy-rate changes across all banking institutions. FADA also called for periodic and public disclosure of banks' cost-of-funds calculations, along with a review of private banks' transmission of rate cuts in the auto-loan portfolio. FADA asked the central bank to issue "corrective directives to ensure uniform, 100% transmission to auto borrowers."

FADA also asked for lower interest rates for auto loans in tier-2 and tier-3 towns and rural areas. The association requested the central bank to encourage lenders to offer lower-priced loans for auto dealerships to manage inventories. It also asked to extend the coverage of the Credit Guarantee Fund Trust for Micro and Small Enterprises --jointly established by the Ministry of Micro, Small & Medium Enterprises and the Small Industries Development Bank of India--to include authorised dealerships and workshops to reduce the burden of collateral, offer new loan options, and provide flexibility in working capital.

The industry body also flagged transactions between state-owned banks and individual dealership employees that may be violating lending norms, and asked the regulator to crack down on them.

FADA also asked for clear guidelines to banks for uniform provisions for MSME-lending to auto-retail businesses, and improve access to such schemes and grievance-redressal mechanisms.

Transaction fees across payment instruments such as credit card payments eroded auto dealers' net margins on new-vehicle sales, FADA said, which also discourages digital-payment adoption. FADA asked the RBI to evaluate and put a cap on merchant-discount rates in the auto retail segment.

FADA asked the governor to re-evaluate the risk weight in lending to the automobile sector, which is currently at 100%. The federation said that lenders could see a 20% growth in lending over the next five years if this weight is reduced. FADA asked the central bank to encourage such lending from non-banking financial companies and small finance banks.

FADA said that auto loans to rural customers, especially for multifunctional farm vehicles, should be included in banks' mandatory 18% lending to the agriculture sector under priority sector lending requirements. This would also boost access to credit in rural areas, and growth in auto retail in the hinterland, it said. The federation asked for priority-lending status on loans for green-vehicles, and for loans to first-time vehicle buyers, it said.

As for the electric vehicle segment, FADA requested the RBI to create a dedicated refinancing facility either through SIDBI or the National Bank for Agriculture and Rural Development for retail loans in this segment. FADA recommended that banks design long-tenure, loan products for electric vehicles with low equated monthly instalments. FADA also suggested that policymakers could introduce interest subvention or tax-linked incentives for loan repayments in the electric vehicle segment.

The federation asked for the creation of an auto-retail working group under the RBI, with participation from stakeholders to monitor issues in the flow of credit to the automobile sector and to address these problems, it said.

FADA also asked for rationalisation of the goods and services tax on used vehicles to increase transparency and formalisation of the pre-owned vehicle market. The association requested the central bank to share the recommendations with the relevant government ministries to ensure a seamless policy framework. End

Reported by Cassandra Carvalho

Edited by Ashish Shirke

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