Consumer finance

Introduction
Consumer finance is the segment of the financial services industry that lends money to individual consumers. Although banks and credit unions are among the lenders in the consumer finance industry, alternative lenders include finance companies, pay day loan services and establishments specializing in lending to borrowers with poor credit. As a whole, the broad range of services in consumer finance provides the financing to purchase vehicles, remodel a home or obtain secured and unsecured lines of credit from banks.

 With liberal policies of rbi,the consumer finance can easily increase.however,aggressive marketing and establishing a client relationship, is the key success in consumer financing. Consumerism itself is fast growing in india,offering excellent scope of lendinng.

Growth of consumer finance in india

Indian economy had been witnessing a strong consumption led growth in the last decade commensurate with experience of any emerging economy. A new breed of customer is emerging as there is greater proportion of young population,changes in taste,habits due to rapid urbanization,growth,electronic media,spread of education and increasing domestic and foreign travel are changing the nature and composition of expenditure, with growing emphasis on quality and brands.

 As domestic consumption demand has become an important driver for economic growth, retail financing,has playing important role in india. In response to this there has been an active efforts by indian banks to be more focused on conumer financial products and services. Though the penetration in this line is still low ,there is a tremendous potential in this line of banking business.

Charecteristics
Parties and structure of the transaction: A consumer finance can either be bipartite or tripartite,a bipartite includes dealer cum financer and the borrower or customer in tripartite transaction,the dealer and financer are two separate entities. Transaction can be in the form of hire purchase,conditional sale,credit sale.

Payment schemes
Consumer finance are divided into two categories: 1.down payment schemes. 2.deposit linked schemes.

 The down payment varies from 20%-25% of the goods value and financing is available for 75%-80% or as ease may be. In a depost linked scheme the down payment varies from 15%-25% of the total value of the asset. The financer pays the full amount to the seller. Zero deposited schemes are available,under which the equated monthly installment is higher than the EMI.

Repayment period and rate of intererst

The borrower can choose a repayment period ranging from 12-60 months. Finance companies notify the customer indicating the amount of equated monthly installments that need to be paid through post dated cheques.

security
The credit provided through the first charge on the asset concerned. The borrower is prohibited from disposing,pledging or hypothecating the asset during the credit period.

Eligibility criteria
Individuals,partnership firms and public and private limited companies are eligible to borrow. Different companies follow different criteria for financing.

Individuals
He should have a minimum of rs.100000 as gross annual income. He should have two years of employment with curent employer. He must have a minmum of 5 years of employment until retirement. He should not change more then 2 jobs during the past five years.

Partnership and companies

It must have a minimum net worth of rs.2.5 lakhs. It should exist for a minmum period of four years. It should make profits for the last 3years. The net profit plus depriciation should be 3 times the annula installment.

The big-small scale industry problem

The problem of credit delivery is easier to handle. The reserve bank of india is continuously extending its settlement schemes but banks are not playing ball. They appear to be more intrested in either investing in government securities or in consumer finance. Now this problem has to be immediately correcetd and the government should ensurethat no viable small scale industry goes under due to lack of finance.

Importance
Increasing risk of consumer finance in corporate lending Retail finance has become the prefered business of banks on account of its higher spreads .it is due to the fact of increasing risk of dis intermediation in corporate lending.the super normal growth in retail finanace has made it the primary driver of banks asset books. Housing loans have been the product of choice for state owned banks because of their profitability.low risk nd and the ease of processing loans.the priority sector status accorded to residential mortgages for less then I million rupees is another factor in their favour.

 Banks have entered almost all the segments in retail finance.they are gainnig share from nbfcs .private banks have started offering loans low ticket items like consumer durables and two wheelers ,besides personal loans. Falling interest rate coupled with increasing long durations have substantially reduced the emis on retail loans thereby making them affordable to more people then ever before..