An SBI circular dated March 27 noted that dealers would need to provide a minimum 25% or 50% of collateral security based on a rating obtained when the loan was renewed or enhanced or a period of six months, whichever was earlier. The collateral can be an immovable asset, fixed deposits or specified securities. Earlier, lenders rarely asked dealers for any collateral. In a letter to Hyundai, SBI had communicated it has reduced the credit period from 90 days to 60 days, with a 15-day grace period to pay back the loan.

Post the grace period, interest rate will be levied at the rate of 6% compared with the 2% levied earlier.

FE has seen a copy of the circular issued to Hyundai.

The rules relating to dealer financing are understood to have been tightened for dealers of Maruti Suzuki. A senior bank executive said the terms were slightly different for Maruti. Sector experts noted the slowdown in the automobile industry and the closure of some 200 dealers has made lenders understandably cautious. Emails sent to Hyundai Motor India and Maruti Suzuki did not elicit a response till the time of going to press.

In a written response the lender said: “SBI is one of the biggest providers of credit for financing of auto dealers and auto loans to individuals. In view of the current slowdown in auto sector, the Bank is continuously reviewing its exposure to the sector. The Bank is actively engaged with the auto majors, dealers and the industry associations like Federation of Automobile Dealers Associations (FADA). The Bank in consultation with auto majors has taken steps to provide support to the dealers for inventory funding by them to tide over the current phase.

Responding to the recent downturn in the auto industry, we at SBI proactively got in touch with our customers, Original Equipment Manufacturers (OEMs), dealers as well as their associations such as FADA for gaining insights into their issues and modifying our product suitably so as to ensure that the sector does not face any stress and the Bank is committed to take any further steps necessary in this regard.”

“A credit period of up to 90 days excluding grace period will be provided selectively by the sanctioning authority to dealers, if recommended by Hyundai,” the circular read. It also said this will be subject to certain conditions, such as in cases where a minimum of 25-50% collateral is available and the dealer is availing the inventory funding with the bank for the last two years. Other conditions include a minimum of 20% coverage of the banks retail loan portfolio of the dealers total retail and a higher rate of interest where credit period is beyond 60 days.