Challenge against vehicle financing companies due to liquidity pull and slow auto sales

Mumbai, Ta. October 21, 2019, Monday

In India, refinancing is becoming a major challenge for vehicle financing companies who rely on short-term funds due to deteriorating economic conditions and liquidity.

Until now, the situation was quite favorable for vehicle financing companies in India and Indonesia. Financing companies were benefiting from the strong economic and demographic status of both countries.

But vehicle sales are declining, especially in India. Vehicle sales are falling due to slow economic conditions, according to a statement by rating agency Moody's. The biggest risk for vehicle finance companies in India and Indonesia is that they rely on short-term wholesale funding. This risk was exposed to vehicle financing companies after the IL&FS chapter came out in September last year in India. Following the move, the liquidity crisis in non-banking finance companies in the country arose.

After the liquidity crisis, many Indian companies are making structural changes to strengthen their funding and liquidity. These companies are turning to long-term liabilities rather than short-term funds. Companies are turning to the securities market to gain additional liquidity.