In order to revive the recession-hit auto sector, the Reserve Bank of India (RBI) will soon be issuing a separate guideline, making it easier for banks and non-banking financial institutions (NBFCs) to repossess vehicles from loan defaulters.
The framework of the new guidelines will be discussed at a meeting called by the Finance Ministry later this week, which will be attended by representatives of RBI, the banking industry and the automobile sector, among others.
“This will be the second such meeting,” industry sources said, adding that at this point of time it was necessary to formulate such guidelines to encourage financing of vehicles by banks and NBFCs.
The auto sector has been hit hard by the ongoing slowdown and more particularly by the reluctance of lending institutions to provide funding for purchase of vehicles.
Representatives from the Finance Industry Development Council (FIDC) — the apex body of NBFCs — Indian Banks Association (IBA), Society of Indian Automobile Manufacturers (SIAM) and private banks had already met on January 30 in this regard.
When contacted FIDC Co-Chairman Raman Aggarwal told PTI that there was a need to have a clear-cut guideline and a regulatory system on vehicle repossession in case of loan defaults.
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“RBI has taken both conventional and unconventional measures to provide enough liquidity in the system... There are some structural reasons (for interest rates not easing immediately)... Over a period of time the rates will come down,” he said.
The central bank would continue to act in order to ensure ample liquidity in the banking system, through conventional and unconventional measures, he added said.
Noting that a well-regulated banking industry has helped the country’s economy insulate itself from the present global financial turmoil, he said central banks across the world were acting in concert to avoid such a scenario in future.
Banks needed more capital to survive in difficult times and should focus on capital-building in ‘good times’, he said.