Rate cut set to drive credit-backed durable sales past 50% this year – Economy News

The Reserve Bank of India’s higher-than-expected rate cuts on Friday may push durable sales backed by easy financing schemes to over 50% from the current 47-48% in the ongoing financial year as electronic firms, non-banking finance companies (NBFCs) and retailers look to capitalise on the incentive provided by the central bank.

Conversations with multiple retailers and consumer durable companies indicate an expected interest rate cut of about 25-30 basis points on consumer durable loans in the coming months, following the central bank’s 50-basis-point repo rate cut last week. Industry executives said that cumulatively, the RBI has reduced the repo rate by 100 basis points in three rounds since February this year, fueling these expectations.

Moreover, the interest rate cuts on durable loans are likely to be timed just ahead of the festive Independence Day period in August. September will see regional festivals such as Onam and Ganesh Chaturthi, followed by major events like Navratri, Durga Puja, Dussehra, and Diwali in October-November. These festivals are crucial for durable goods companies, accounting for over 50% of their annual sales.

“The premium end of the durable market has been growing faster than the mass end for some time now. Finance schemes have been a significant contributor to driving the affordability of premium products. This trend will get an impetus with the rate cut announced by the RBI,” Avneet Singh Marwah, CEO, Super Plastronics, a consumer durables manufacturing firm based in Noida, which has licenses for brands such as Thomson, Kodak and Blaupunkt in India, said.

Experts say that while piecemeal payments have driven high-value purchases in India for long, be it homes or cars, the trend is catching up with smaller purchases too, as consumers look to upgrade their products or seek instant gratification with new gadgets.

In recent years, consumer durable companies, electronics retailers and NBFCs have aggressively promoted credit schemes such as no-cost or low-cost EMIs, longer-tenure loans, zero-down payment options, and cashbacks. As a result, the share of sales from these schemes has more than tripled over six years, rising from 15% in 2019, according to experts.

A cut in interest rates on durable loans will further reduce the acquisition cost of these products, especially in the premium segment, at a time when urban demand trends have been mixed. While interest rates on consumer durable loans vary by product, experts say they currently average around 11-12% per annum.

“Stakeholders will look to pass on the gains from an easing monetary policy to consumers. As a result, sales coming through credit schemes will get a fillip. At an industry level, sales led by easy financing are close to the halfway mark, it could certainly cross the 50% mark this year as brands, retailers and NBFCs get aggressive,” Kamal Nandi, business head and executive vice-president, appliances business at Godrej Enterprises Group, said.

Coupled with the fiscal stimulus measures that have kicked in from April onwards, companies anticipate that consumers are likely to have more money in their hands to spend during the festive period this year, pushing them to gear up for the likely consumption boost in the second half.

NS Satish, president, Haier Appliances, said, “The twin measures of a fiscal stimulus as well as a rate cut are positive from a consumption standpoint. The durables industry will stand to gain as it relies on discretionary spending.”

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