A rapidly growing sector, with rising financial needs

The size of the consumer durables industry (only large home appliances) stands at c.Rs 900bn. Of this, TVs contribute the maximum at 33%, followed by refrigerators at 31%, air conditioners at 17%, washing machines at 13%, and air coolers at 5%. While the industry’s CAGR over FY12-19 has been a robust c.15%, the financed book that caters to this industry has seen an even more rapid pace of 32% CAGR, driving finance penetration to 30% in FY19 from just 13% in FY12. A large part of this growth has come from urban markets, which contribute c.65% of the total business.

Consumers prefer zero-cost finance; manufacturers bear most of the interest cost

Up to the end of last decade, a large part of consumer durable purchases used to be either in cash or via upfront payments through credit or debit cards, as banks’ traditional loan schemes were quite tedious, and tardy in terms of delivery of finance. However, with NBFCs expanding their reach beyond metros and becoming quite customer friendly in terms of cost, speed, and documentation (lesser), many more customers started opting for finance schemes.

Interaction with participants across the value chain – viz. retailers, consumers, and OEMs, revealed the following reasons for rising preference for finance schemes:

1. Affordability and subvention: This is a major factor underpinning preference. In this industry (consumer durables), easy-finance schemes are available at zero-cost EMIs, as brands majorly bear the interest cost (subvention). This is unlike any other industry.
2. Expanding reach of banks and NBFCs: Increasing reach of non-banking financial companies and banks beyond tier-1 cities is also a major factor.
3. Digitisation: Demonetisation also acted as a trigger point for NBFCs/banks to get into the consumer finance market more aggressively, thus allowing easy finance options.
4. Customer-friendly process: NBFCs/banks have become quite friendly in terms of speed and less documentation. While it used to take 15-30 minutes a few years ago to process a consumer durable loan, now it happens instantly, with just one swipe.
5. A rise in aspiration levels is driving demand for high-ticket consumer goods, as zero-cost EMIs makes it more affordable.