The next time you fail to pay the equated monthly instalment (EMI) on your car or two-wheeler for two successive months, your bank may be able to take the vehicle away — legally.
The finance ministry, along with the Reserve Bank of India, is finalising a proposal which may allow lenders to re-possess vehicles in cases of defaults in repayment.
A ministry official, who did not wish to be named, said cars and two-wheelers might be brought under the ambit of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act.
“At present this act is not applicable for re-possession of vehicles, making it difficult for banks and non-banking finance companies to get a return in case of a default,” the official said.
The Rs 150,000-crore automobile industry, which has been reeling under a prolonged finance crunch since last year, has been calling for specific guidelines on repossession since the second half of 2008.
“Almost 80 per cent of the industry is dependent on financing and Rs 120,000 crore is a big chunk for the automotive industry,” said Dilip Chenoy, director general, Society of Indian Automobile Manufacturers.
In December, Maruti chairman R.C. Bhargava had said: “Since the vehicle as an asset depreciates faster, the banks cannot adequately cover the risks due to delayed re-possession in case of default of payments. There is an urgent need of clarity on reposession norms for automobiles.”
On the other hand, the banking industry — hit hard by the global slowdown and liquidity crunch, and fearing a rise in defaults — had become reluctant in disbursing fresh loans. “If such a proposal is concretised, it will definitely ease credit to the sector,” said the chairman of a public-sector bank.
Passenger vehicles and two-wheelers have been the worst affected due to financing woes — the former posted a 0.46 per cent decline in sales during the quarter ended December 2008, the latter grew by 1.85 per cent.
The SARFAESI Act empowers banks and financial institutions to recover their non-performing assets without the intervention of courts.