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Indias changing middle class tastes whet the appetite for automobile finance
Henry Ford invented the first automobile, right? Wrong. The first automobile was actually invented by Sam McLaughlin, a Canadian from Oshawa, Ontario. He went into partnership with American David Buick to mass-produce McLaughlin-Buick vehicles, a year before the Model T arrived. Subsequently, car registration climbed from 178 in 1903 to just over 2,000 by 1908. Selling cars was a challenge during this period, until an extraordinary salesman and entrepreneur, William Durant, entered the fledgling automobile industry. William Billy Durant founded General Motors and was the first to introduce automobile financing. Automobile loans were not common in India until the 1990s, and were restricted to the rich. Ordinary citizens did not or could not take loans because they didnt earn enough or thought that it was less important to own a car when compared to other essential needs. They feared the risk or were more interested in saving for the future. All that changed with the liberalization of the Indian economy around 20 years ago. This paper analyzes the impact of affordable automobile loans in the middle class consumer mindset and its long term impact and implications on the Indian society.
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the lending life cycle, from origination to processing to recovery. This also increased competition and forced banks to enter untapped rural markets with motorcycle loans at discounted rates of interest
24.3% -1.2%
1,499,300 FY09
56,975 0.1% 19,941 35% 37,034 65% 6,296 17% 30,738 -11.7%
32%
1,517,400 FY08
56,902 11.3% 15,933 28% 40,969 72% 6,145 15% 34,824 6.9%
1,863,700 FY10
72,683 27.6% 21,805 30% 50,878 70% 7,632 15% 43,247 40.7%
2,459,500 FY11
98,380 35.4% 27,546 28% 70,834 72% 10,625 15% 60,209 39.2%
Conclusion
The automobile finance offered by banks and financial institutions at affordable rates of interest has paved the way for the growth of the automobile sector in India. Various schemes and features are available to consumers which can accommodate their every need, thus luring them into a financing option. The Indian automobile sector has come a long way since the first car was manufactured in Mumbai in 1898. Today, it is one of Indias key industries and a pillar of the economy, employing over 10 million people directly and indirectly. The Indian automobile market has claimed global attention, being the second largest two wheeler market, fourth largest commercial vehicle market, and eleventh largest passenger car market in the world, and poised to become the third largest automobile market next only to the United States and China. Industry growth fueled by the middle class s appetite for luxury cars has tripled the disbursal of automobile loans in the last few years. As Indian society abandons its erstwhile savings culture for a consumerist, indebted lifestyle, there is concern about its ability to fund its retirement years in the absence of a Government sponsored social security program. This is already being manifest as a higher retirement age, extending well into the 60s. The Government has a big task on hand to introduce proactive measures to combat potential economic imbalances arising from these trends. Against this backdrop, it is natural to ask whether it is worth the while of a middle class household to spend half its income repaying the loan on a luxury car. However, as long as banks continue to offer attractively priced loans, consumers will succumb to temptation.
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References
1. Maps of india.com 2. Indiabusiness.nic.in 3. Livemint.com 4. iloveindia.com 5. thehistoryof.netmotorbeam.com 6. Surf India.Com 7. Business.mapsofindia.com
Jayanthi K J
Principal Consultant, Finacle, Infosys
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