RBI would actively look into Timely transmission of repo rate cuts to end borrowers; Reassessment of 100% risk weight on auto loans; Extending CGTMSE cover to authorised dealerships
FinTech BizNews Service
Mumbai, July 26, 2025: The Federation of Automobile Dealers Association has submitted a detailed representation to the Governor of RBI. The representation is on Ease of Doing Business in Auto Retail, highlighting key structural and financial bottlenecks being faced by our members across the country.
According to Mr. Sai Giridhar, VP, FADA, FADA submitted detailed representation on Ease of Doing Business in Auto Retail, highlighting key structural and financial bottlenecks being faced by our members across the country. The RBI Governor gave the meeting a patient hearing and acknowledged the sector’s growing contribution to the economy and employment. He took note of several critical issues. This was our first-ever engagement at the level of RBI Governor – a significant step forward in our policy outreach journey.
Mr. Sai further claims that RBI Governor assured that RBI would actively look into:
• Timely transmission of repo rate cuts to end borrowers;
• Reassessment of 100% risk weight on auto loans;
• Extending CGTMSE cover to authorised dealerships;
• Curbing unethical direct incentives being disbursed to dealership staff by banks.
He further indicated that RBI would take up some of these matters internally and, where required, in coordination with concerned ministries.
Mr. Sai Giridhar VP FADA, Mr Amar Jatin Sheth Secretary FADA and Mr Saharsh Damani CEO FADA met Mr Sanjay Malhotra, Governor, Reserve Bank of India, at RBI Headquarters, Mumbai.
This meeting marks an important milestone in FADA’s continued efforts to bring auto retail into the mainstream financial and regulatory discourse.
The FADA Representation raised following issues in the meeting:
Auto Retail: A Pillar of India’s MSME-Driven Growth
The automobile-retail ecosystem in India today comprises some 9,000 Dealer Principals and over 15,000 authorised dealerships operating more than 30,000 touch-points across two-wheelers, three-wheelers, passenger vehicles, commercial vehicles, construction equipment and tractors. Together, these outlets employ approximately five million professionals—predominantly drawn from local talent pools—without necessitating relocation. To put this in perspective, the largest five Maruti dealerships collectively employ a workforce comparable to Maruti’s own 26,000-strong headcount. On average, a passenger-vehicle showroom supports 100 jobs, while a two-wheeler outlet sustains 50 roles, underscoring the sector’s deep socio-economic footprint.
Scale, Scope and Segment Dynamics
In FY25, India’s auto-retail market was worth roughly ₹9.0 lakh crore and is projected to expand by 8–10% to nearly ₹9.7–9.9 lakh crore in FY26. Volumes climbed to approximately 2.6 crore units in FY25—up from 2.2 crore in FY21.
Revenue is diversified across categories (PV 43%, CV 27%, 2W 17%, Tractors 8%, 3W 5%) and service lines (new-vehicle sales 75–80%, service 8–10%, spares & accessories 7–10%, pre-owned vehicles 3–4%, insurance and finance payouts 1% each, with other ancillary streams accounting for 15–20%). Volume-wise, two- wheelers dominate at 72%, followed by passenger vehicles (16%), three-wheelers (5%), commercial vehicles (4%) and tractors (3%).
Fiscal and Multiplier Impact
The auto-retail sector contributed an estimated ₹3.3 lakh crore in GST and over ₹88,000 crore in road-tax revenues in FY25, making it 3.5 times larger than organised retail. With more than 55 dealerships celebrating over half a century of continuous operation, the industry is not only a growth engine but also a bedrock of institutional memory. Crucially, for every direct job at an OEM plant, auto retail generates nearly 18 downstream roles across sales, service, logistics and lending—highlighting its extraordinary employment multiplier. Network density stands at 2.05 dealerships per 100,000 population, double that of other organised-retail verticals, reflecting the sector’s deep market penetration and its vital role in India’s ease-of- doing-business agenda.
Bridging India’s Vehicle Ownership Divide
India’s vehicle-ownership density remains among the lowest globally, at just 34 cars per 1,000 inhabitants—an order of magnitude below major developed markets such as the United States (850/1,000), Japan (670/1,000) and the United Kingdom (560/1,000). Even emerging peers like Brazil (400/1,000) and China (231/1,000) far outpace India’s current level of motorisation. This significant gap highlights both the untapped potential of India’s mobility market and the imperative to accelerate infrastructure development, access to finance and regulatory reforms to support sustainable growth in car ownership and mobility services.
Issues Where Ease of Doing Business Can Take the Sector Further
While we sincerely appreciate the Reserve Bank of India’s efforts toward strengthening MSMEs and enhancing the ease of doing business, we wish to highlight certain regulatory and operational issues that continue to hinder the efficient functioning of the auto-retail industry—particularly for Micro, Small and Medium Enterprises (MSMEs) that form a large segment of this ecosystem. We humbly submit the following recommendations for your kind consideration:
1. Ensuring Effective Transmission of Repo-Rate Cuts:
Under your leadership, the RBI has delivered the fastest series of policy-rate reductions in its history—a clear positive signal for the economy. Yet, this benefit is not fully visible in the auto-retail sector. While public-sector banks pass on repo-rate cuts to auto borrowers immediately, many private banks delay transmission on the pretext of internal cost-of-funds assessments.
We therefore request the RBI to:
a. Monitor and enforce a strict, time-bound transmission of policy-rate changes across all banking institutions.
b. Require periodic, public disclosure of banks’ cost-of-funds calculations to enhance transparency.
c. Conduct a focused review of private banks’ repo-rate pass-through lags in the auto-loan portfolio, and issue corrective directives to ensure uniform, 100% transmission to auto borrowers.
2. Strengthen MSME Benefits for Auto-Retail Businesses:
Although auto workshops, service centers and smaller dealerships are eligible for MSME registration under the Udyam framework (NIC Code 2008), the implementation of MSME benefits is inconsistent. In several instances, banks have not extended preferential interest rates to MSME-registered dealerships; in fact, some MSMEs are offered higher rates than non-MSMEs, defeating the policy’s intent. Additionally, many MSME-registered auto businesses face challenges in accessing other MSME-linked schemes and incentives. We request RBI to issue clear guidelines to all banks to ensure:
a. Uniform application of MSME lending benefits to eligible auto-retail businesses.
b. Mandatory extension of concessional lending rates and priority sector classification.
c. Improved access to MSME-linked support schemes and grievance-redressal mechanisms.
3. Unlocking Inclusive Credit for India’s Auto Retail through CGTMSE:
a. India’s auto-retail ecosystem spans a diverse real-estate footprint: sales showrooms requiring prime commercial leases, service workshops needing dedicated industrial spaces, and spare-parts trading operations dependent on flexible working capital.
b. Showroom operators depend on robust inventory financing and retail-loan partnerships; workshops require cash-credit lines for tooling and labour; spare-parts dealers rely on bank guarantees and short- term credit facilities.
c. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)—jointly established by the Ministry of MSME and SIDBI—has, for over two decades, facilitated collateral-free lending of up to Rs5 crore to startups and MSEs. Yet, authorised dealerships and workshops remain outside its ambit.
d. Extending CGTMSE coverage to India’s auto-retail channel would alleviate the collateral burden, unlock new credit lines, accelerate infrastructure investments and enhance working-capital flexibility—fueling sustainable growth in this vital downstream industry.
4. Direct Incentive Disbursements Undermine Dealership Autonomy:
Despite explicit B2B agreements stipulating that all financial incentives must flow through the dealership entity, certain public sector banks continue to credit commissions directly to frontline dealership staff bypassing established HR and managerial frameworks. This practice constitutes an unauthorised kickback scheme, whereby a third party directly incentivises another organisation’s employees without routing payments through the authorised dealer, thereby violating engagement policies for Direct Selling Agents.
Such illicit third-party inducements erode dealer autonomy, disrupt internal incentive structures, and create governance and transparency risks across the auto retail ecosystem. We therefore urge the RBI to direct all banks to immediately cease direct payouts to dealership employees and to strictly enforce routing of all incentives through authorised dealership accounts only.
5. Recalibrating Risk Weights and Unlocking Priority Sector Benefits:
Banks today assign a 100 percent risk weight to auto loans—significantly higher than the 40 percent applied to home loans—even though vehicles serve as readily realisable collateral. By reducing the risk weight on auto finance, lenders could stimulate an estimated 20 percent growth in disbursements over the next five years. In parallel, bespoke inventory-and-workshop funding schemes would bolster dealer liquidity, ensuring showrooms and service centres have the working capital needed to meet rising customer demand.
Agriculture-linked customers use their vehicles for a spectrum of farm-related tasks—transporting seeds, inputs and harvested produce, loading and unloading goods, and even ferrying labour. Two-wheelers, in particular, are a lifeline in rural India for both personal mobility and income-generation. Given banks’ obligatory 18% lending to the agriculture sector under Priority Sector norms, auto-loan disbursements to rural customers—especially for multifunctional farm vehicles—should be recognised within this carve-out.
Linking rural vehicle financing to agri-Priority Sector Lending would address the biggest bottleneck in semi-urban and rural credit access. Such a realignment would encourage banks to adopt more aggressive outreach in hinterland markets, driving sustainable growth in auto retail across India’s vast rural hinterland.
6. High Credit-Card Commissions Undermine the Digital-India Vision:
Despite the Government’s drive toward a cash-less economy, auto dealers shoulder punitive transaction fees
across multiple payment instruments: 1.40% on standard credit cards, 2.25% on commercial cards, and up to
0.90% on debit-card transactions above Rs2,000 (with 0.40% below Rs2,000). By contrast, UPI and RuPay-debit
payments remain free. These layered merchant-discount rates erode virtually the entire net margin (3–4.5%)
on new-vehicle sales, disincentivise digital-payment adoption and hinder our Ease-of-Doing-Business agenda.
Such disproportionate charges cripple dealer profitability and disincentivize digital-payment adoption,
stalling our collective progress toward a truly digital India. We request RBI to evaluate and cap merchant-
discount rates for auto retail, ensuring digital payments become a vehicle for growth rather than a revenue
drain.
7. Boosting Access to Credit and EV Finance:
To align with national objectives on clean mobility and financial inclusion, we recommend:
a. Improved Access to Affordable Credit:
- Lower interest rates for auto loans in Tier-2/3 towns and rural regions.
- Encourage NBFCs and small-finance banks to extend auto-retail credit with reduced risk weights.
- Grant Priority Sector Lending status to green-vehicle financing and first-time buyers.
b. Policy Support for EV Financing:
- Create a dedicated refinance facility via SIDBI/NABARD for EV retail lending.
- Encourage banks to design long-tenure, low-EMI EV-loan products.
- Introduce interest subvention or tax-linked incentives for EV-loan repayments.
8. Working Capital and Taxation Measures:
a. Encourage banks to offer competitive working-capital and inventory finance to auto dealerships.
b. Rationalize GST on used vehicles to encourage formalization and transparency in the pre-owned market.
9. Creation of a Dedicated Auto-Retail Working Group under RBI:
Establish an Auto-Retail Working Group under the RBI, with stakeholder participation, to regularly monitor
sector-specific credit flow and address emerging issues.
Coordinated Policy Outreach for Sustained Growth
To ensure these recommendations deliver maximum impact, we respectfully request the RBI to circulate this representation to all relevant ministries—Ministry of Heavy Industries; Ministry of Road Transport & Highways; Ministry of Commerce & Industries; and Ministry of Finance—so that auto-retail benefits may cascade seamlessly through existing policy frameworks.
With the automobile sector contributing 7.1 percent of India’s GDP, the lack of downstream financing and collateral support has constrained growth—evidenced by a modest 2% increase in volumes during the first half of FY26, with two-wheelers up 2%, commercial vehicles up 1%, passenger vehicles up 3% and tractors remaining flat. By extending targeted credit guarantees, recalibrating risk weights, and granting Priority Sector status, we can drive double-digit expansion in the sector’s GDP share over the next five to ten years—galvanising job creation, spurring infrastructure investment and fostering inclusive economic development.
Such measures will also relieve operational constraints on auto-retail MSMEs, improve credit access and reinforce the Government’s Ease-of-Doing-Business mission.
