Consumer finance accounts for around 30 to 35 percent of the consumer durable industry sale, but the pace of growth of consumer durable financing has been rapid.
“Consumer durable financing has grown at a staggering pace of 32 percent compound annual growth rate over the last 6 to 7 years. There has been a sharp increase in durable finance penetration to 29 percent in FY18 from 13 percent in FY12,” said Rahul Prithiani, director at CRISIL Research.
Various brands also reaffirmed this growth. Kamal Nandi, business head and executive vice president at Godrej Appliances, said that a spurt in the number of consumers opting for consumer durable loans have increased its contribution to sales from seven to eight per cent to 18 to 20 percent in the last 3 years. He said that easy finance schemes available at interest free EMI and manufacturers majorly bearing the interest on purchase, unlike any other industry, is a major factor underpinning this preference.
“From the manufacturer’s perspective, it helps in pushing sales and entices customer into buying aspirational premium products,” Prithiani reaffirms. The increasing penetration of non-banking financial companies from metros, tier 1 and tier 2 cities and beyond cities was also a major factor, he added. Nandi felt that demonetization facilitated more and more NBFCs to venture into the consumer finance market, thus allowing easy finance options.
Mithun Chittilappilly, managing director at V-Guard Industries Limited, stated that consumer financing for high value consumer products like solar water heater and DUPS+battery systems have been going up. He also attributed this to NBFCs becoming “quite friendly” in terms of speed and less documentation. “We find the traditional loan schemes of banks are quite tedious and tardy on delivery of finance.”
“While 5 years back, we witnessed about 20 percent television sales via finance schemes, the number has now exponentially evolved to around 50 per cent televisions being financed by our customers,” said Satish Padmanabhan, sales head at Sony India. No cost to customers and affordability were the two reasons he attributed. “On top of this, finance schemes are now being actively promoted by manufacturers as well as finance companies themselves,” he added.
Avneet Singh Marwah, chief executive officer at SPPL, Exclusive Brand Licensee of Thomson in India, also said that consumer finance within the last five years have seen “multiple growths as the demand for bigger size and premium televisions grew.” He said that many finance companies provide special rates, making TVs affordable with easy installments.
“Better availability of credit information, manufacturers continuing to provide subventions, increase in consumer durable product penetration, rapid urbanization and increase in spending power, and rise in aspiration levels are some of the other key factors which have aided growth in the industry,” Prithiani said.
However, despite these myriad reasons why consumer finance is burgeoning, it still remains a fact, as pointed out by Prithiani, that more than 60 percent of the sales continue to take place on cash basis. Relatively lower financial inclusion beyond tier 3 and tier 4 cities make it difficult to provide credit, he said. “People distrust the digital means due to high levels of fraud cases, and for merchants, the transaction charges are burdensome,” Chittilappilly pointed out.
But, expectations for consumer finance penetration to increase remain. “Increasing push towards digitization, as well as a higher financial inclusion going forward is likely to push up growth in durable financing,” said Prithiani.― The Hindu Business Line