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Credit squeeze slows consumer durable sales
Tanuja Jaishree in Mumbai
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September 05, 2008 11:41 IST

Consumer durable companies are witnessing a slowdown in sales of finance-linked products after banks and finance companies reduced their lending, fearing a sharp rise in defaults.

Videocon [Get Quote] has registered a 10 per cent drop in sales in products linked with consumer financing in the past six months especially in the rural and semi-urban areas, according to K R Kim, chief executive officer and vice-chairman, Videocon. They have, however, recovered the drop in sales through their dealer finance scheme, he said.

Consumer goods dealers have also admitted to a drop in sales.  Some dealers, declining to be identified, spoke of about 20 per cent decline in sales while others claimed that demand had halved in the past one year.

LG India registered a 4-5 per cent fall in the contribution of consumer finance sales, according to V.Ramchandran, director, sales and marketing.  The number of players extending consumer financing has come down, the absence of which has resulted in the weakening of the durable category, he said.

Banks have been cutting consumer financing, as a steep jump in inflation and a consequent rise in interest rate, triggered fears of repayment capabilities. The rising intrest rates were responsible for the slowdown in consumer financing, according to O V Bundellu, Deputy managing director, IDBI bank.

About 10-20 per cent of the consumer durable industry's sales can be accounted because of financing options Ramchandran said. "With the growth of organised retail, need for consumer financing becomes greater,'' he said.

Samsung India, which registered a 30 per cent growth in the overall consumer durable sales in the first six months, also said sales of products linked with financing have dropped 15 per cent. The withdrawal of some banks such as ICICI, Citifinance from consumer financing has led to rapid fall in sales, according to a company spokesperson.

Sales of higher-end products such as LCD televisions, which have more than trebled in the past year, have been the worst hit. The segment's growth has dropped to 150 per cent in the past six months.

Frost-free refrigerators sales, which were growing at 20 per cent last year, have almost stagnated this year with a similar impact on sales on entry-level goods, according to Kamal Nandi, Vice President, sales and marketing Godrej [Get Quote] Appliances.

To overcome the constraint, consumer durable companies are now drawing up their own financing schemes or helping dealers to tie up with banks.

Videocon has initiated a scheme to boost up sales of their product range which has been termed as dealer financing/channel financing through which they expect to make up for a decline in sales. Manufacturers should have different schemes to refinance in order to boost sales, Kim said.

Videocon is tying up with select lenders including ICICI Bank [Get Quote] and Standard Chartered Bank to offer financing to the dealers to push up sales.

Their tie-up with Standard Chartered and ICICI Bank which is at the finalisation stage, is expecgted to  enable dealers and distributors to get funds at reasonable credit to purchase Videocon's products, according to Amit Gupta, vice-president (sales), Videocon.

Meanwhile, banks are reviving consumer lending by imposing stricter norms. Bank of Baroda [Get Quote] plans to give consumer loans to customers who have salaried accounts in their banks and have the necessary repayment power, according to Nandan Shrivastav, general manager, Retail Banking, Bank of Baroda.

Deutsche Bank AG, India that offers personal loans admitted that there had been a slowdown in the market for these loans even though there is no specific scheme that caters to provision of loans for purchase of consumer durables.

The bank however expects a lesser demand for purchase of consumer durable goods compared to the previous years due to inflation and rising intrest rates.

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