Longer-tenure EMIs (equated monthly instalments), buyback guarantees, and other sweeteners are fuelling sales of automobiles, consumer durable and electronic goods as a spike in prices and a propensity to up-trade to higher trim models are making such borrowing schemes more popular.
However, brands said they may have to forsake some of their margin if the cost of borrowing goes up for such consumer loans – especially for no-cost EMIs whose interest cost they either bear alone or with retailers – after the Reserve Bank of India increased the risk weight on consumer credit including credit card receivables and bank loans to NBFCs by a fourth.
The central bank’s latest move may force banks and non-banks to set aside more capital, which can potentially increase the lending rates.
“Indian consumers are not going to buy consumer goods on EMIs unless those are no-cost,” Haier India president Satish NS said. “So, any increase in borrowing cost will have to be borne by the brands or they may pass it by marginally increasing product prices.”
Cars costing upwards of ₹10 lakh accounted for 41% in total sales in 2022. The trend has only gained traction in the current year, stoking demand for longer-tenure EMIs and higher loan-to-value (LTV) ratio.
“The LTV used to be around 90% in the pre-Covid period, but post Covid, most customers are preferring it to be anywhere between 90-95%.,” said Nikhil Ranade, head of retail finance at Landmark Group, a luxury and premium automotive retail chain. “Even the average loan tenure, which used to be around 50 months, has now moved up to 56-58 months, implying that more people are opting for a tenure of 60 months to 84 months,” he added.
The share of EMI-based purchases has gone up by 5-7 percentage points for electronic products such as televisions, refrigerators, and smartphones this year – the highest growth rate in at least five years – as brands rolled out such schemes even for entry-level products and in small stores, industry executives and market researchers said.
For televisions and appliances, the share of no-cost EMI scheme-led purchases shot up to 60-65% in metro markets while in upcountry locations, it was 40-45% this calendar year till Diwali.
For smartphones, market tracker Counterpoint Research said the share of such transactions now accounts for 33% of all transactions, up from 28% last year, with brands offering no-cost EMI schemes for ₹10,000-plus smartphones this year as compared to the usual ₹20,000-plus.
Purchases on credit, especially no-cost EMIs, have already become a habit for Indian consumers for they can maintain their wallet liquidity, buy more premium, upgrade more often, and also since their monthly expenses have gone up due to inflation which is still more than what it was two years back, executives said.
“The mindset is shifting from owning to renting – i.e., change car, mobile, etc. every three to four years,” said Sumit Bali, group executive and head, retail lending, at Axis Bank.
Post Covid-19, it appeared it was pent up demand but it is sustaining, he said. Also, credit card spends and number continue to grow well. Credit availability also has been easy with fintechs and NBFCs also being active, Bali said.
Rajeev Singh, partner and consumer industry leader at Deloitte Asia Pacific, said the average saving percentage in India – which used to be 24-25% in pre-Covid years – had inched up a bit during the pandemic but has now fallen by 7-8 percentage points.
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