Cheer return of finance schemes.
The party has not ended for consumer durables manufacturers, who recorded a 20-30 per cent growth during the festival period this year. They anticipate similar growth this winter, with the return of consumer finance schemes.
Till early last year, the sale of financing-led consumer durables accounted for 15-20 per cent of the overall sales in the sector. However, this contribution fell to 8-10 per cent in the past 18 months after banks and finance companies drastically reduced lending. After the credit crisis hit banks last year, many top private sector lenders, including ICICI Bank and Citibank, scaled down or exited retail financing of small-ticket durables. That left the market to non-banking finance companies such as Bajaj Finance and Shriram Finance which, too, decided to go slow on such loans.
Analysts say many big players tend to avoid this business because of defaults, and retail outlets provide loans for the products they sell. For instance, Future Group, which sells durables through its Big Bazaar hypermarkets and eZone electronics chain, offers a financing option to its consumers through its arm, Future Money. They estimate that finance for consumer durables currently accounts for a meagre 2 per cent of banks’ retail portfolio.
Now the schemes are back and manufacturers are also busy introducing zero interest finance schemes once again. Under such a scheme, the manufacturer bears the interest cost on the loan, while the processing fee for the application is either passed on to the consumer or shared between the dealer and the manufacturer. While the consumer benefits by buying on easy instalments, the company draws revenues on bulk sales.
At Godrej & Boyce, in 2007 and 2008, around 10 per cent of the total units sold used to avail finance schemes. The figure is currently 5 per cent. But on the back of these schemes, the appliance division of Godrej & Boyce anticipates a 20–30 per cent growth in sales volume.
“There was a lull during the festive season last year, as we were hit by the slowdown but this year we have already witnessed a pick-up in consumer sentiments. The 6th Pay Commission and the bonus likely to be offered by companies will go a long way in boosting demand further,” says Kamal Nandi, vice-president of Godrej & Boyce.
“We have higher purchase schemes with Bajaj Finance and Shriram. These include durables priced at Rs 10,000 and upwards,” he adds.
Analysts say it is difficult to retrieve money from defaulters of durables or smaller electronics items compared to a car defaulter, a reason why many durables’ financing companies had exited the business. Citi, GE Money and ICICI did so at the end of last year. However, Bajaj Finance has expanded in a very big way since then.
A spokesperson of Samsung Electronics says: “At Samsung, we are running triple-zero finance offers for all products with Bajaj Finance . We are also using Shriram Finance in the South. Finance-led sales would be contributing around 7 per cent of our consumer electronics sales this year.”
Samsung’s tie-up with Bajaj Finance for a triple-zero finance scheme translates into zero initial payment, processing fee and interest. The offer is expected to help consumers upgrade to premium products easily.
Ashish Aggarwal, head of accounts, LG Electronics, concurs: “We have introduced two zero per cent finance schemes, valid till November. The schemes are valid on purchases above Rs 5,000 and consumers can pay in nine to 10 instalments.”
LG, too, is offering finance schemes with Bajaj and Shriram.
Even Sony India has tied up with several banks to offer an interest-free equated monthly instalment (EMI) scheme for card purchases and the company says it is working well.
