Maruti Ropes In SBI Arms For Car Finance  ( June '30,2003, FE)

The Rs 9,426-crore Maruti Udyog Ltd (MUL) is strengthening its car financing network with the proposed induction of the associates of the State Bank Of India (SBI). The fresh move to rope in seven associates of the SBI including State Bank of Patiala, State Bank of Bikaner, State Bank of Punjab comes close on the heels of an alliance with the SBI (branded SBI-MUL Finance) in February 2003.

The new initiative is critical as a single associate like State Bank of Patiala has 748 branches and a large customer base. Earlier, the tie-up with SBI, which has over 9,000 branches, has already given MUL access to unrepresented, remote parts of the country where the car financing is not available through any organised channel.

MUL expects consumer car financing — besides SBI, it has currently eight partners under Maruti Finance — to account for over 75 per cent its domestic sales in fiscal 2003-04, up from 70 per cent in 2002-03 (sales including exports: 3,59,960 units).

MUL has identified consumer financing as a centerpiece of its marketing strategy to secure accelerated growth in the competitive passenger car market. During the IPO roadshows, MUL managing director had indicated that the company was targeting to convert one per cent of the two-wheeler consumer base (market size: around five million units a year) every year to the Maruti family, especially through competitive and extensive car financing.

Mr Khattar has argued that through the SBI network, with the rate of interest of 10.5 per cent, loan tenure of 5-7 years, the EMI of Rs 2,600 - Rs 2,700, one can buy a Maruti 800 just by paying 50 per cent of what one would pay upfront for a two-wheeler on the basis of future savings. “Two-wheeler consumer financing is done in only 50-60 cities; in other cities, two-wheeler customers pay upfront the entire money,” Mr Khattar had pointed out. “In two-wheelers, the total financing may be 30-33 per cent, the rate of interest ususally around 16-17 per cent and a tenure of around two years,” he had said.