This is being seen as a way for SBI to reduce its exposure to risk from a sector is currently seeing a massive slowdown.

SBI tightens lending terms for auto dealers amid slowdown
Money Auto Sector Wednesday, July 31, 2019 - 10:42

India’s largest public sector bank, State Bank of India appears to be hedging itself from the slump in the country’s automotive sector following constant reports of slide in the sales of vehicles and many manufacturers cutting down on production. The bank is reportedly asking its branches to insist on a 25% margin for lending to dealers of Hyundai vehicles. This communication has been part of an internal memo that Reuters claims to be in possession of.

There is a possibility similar conditions are being put on the dealers of other automobile brands as well, but that cannot be confirmed.

The banking system in the country has become highly cautious to lending for the past few years ever since the pandora’s box of massive NPAs was opened.

Ironically, it is the same baking and non-banking finance channels that is part of the reason for this drop in the sale of cars and other vehicles in the market. Whatever the real reason, the constant reports of jobs being cut and production being stopped etc. will worry any lender and SBI appears to have reacted ahead of the curve.

The dealers of Hyundai Motor Company will have to offer a collateral of 25% to borrow from SBI here onward. Even those who have already availed loans will have to enhance the value of the security offered. For the record, Hyundai enjoys a market share of 16% selling 3.3 million cars in India, occupying the second spot after Maruti.

According to the report, SBI's loan exposure in the auto retail market was Rs 718.8 billion ($10.5 billion) at the end of March 2019.

The memo referred to by Reuters is dated March 27 (much before the recent reports) and has been kept confidential. For all you know the bank may have an entirely different take on this.

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