Nano: Long wait leads to cancellations

Not long ago, public sector banks had taken a fancy to financing the world's cheapest car -- Tata Nano. This time around, it is the cancellation of the loans that is keeping them busy.

Customers of Nano are queueing up to cancel their bookings, having to pay interest on their loans long before getting possession of the vehicle. It is said that over a tenth of Nano's initial bookings now stand cancelled.

Banks as well as Tata Motors dealers indicated a 10-15 per cent cancellation of Nano over the past few months. Those customers who were given delivery dates of 2010-end and early 2011 pulled out, they said.

Tata Motors said it was 'not unusual'. "There have been cancellations for Nano by some customers who were late in the queue. We do not find this exceptional, neither by the occurrence of cancellations nor by their quantum. We had noticed this in the case of Indica too when the car was launched through the booking route in 1999," the company said in an emailed statement.

Report of malfunction in the vehicle is said to have caused the cancellations too. There were reports of three Nanos having caught fire since September this year.

A key differentiator for Nano from other cars was the nature of the loan till the physical delivery of the vehicle. A bank financed the booking amount for Nano and charged an interest against it.

"As a result, the loan does not technically qualify for a car loan," said S K Dey Purkayastha, general manager, retail banking and marketing of IT products, UCO Bank. It financed Nano as a bridge loan at 10.50 per cent till cancellation or repayment by borrower, or till it was converted into a regular car loan with delivery of vehicle.

In other words, if the car was available for hypothecation, it could be financed. Otherwise, a bridge loan could be considered and continued till the vehicle was available for hypothecation. Bridge loans were said to be safe income proposition for the bank.

Apart from the interest on the loan, the borrower was not required to repay it and was essentially settled by way of conversion into a regular car loan, if sanctioned by the bank, or repayment at a later stage by the borrower through own sources, or a takeover arranged by the borrower or by the bank exercising its first right of cancellation, a circular on the bank's website stated.

Analysts believe the waiting period for the small car would continue to affect sales. "Customers get into a certain frame of mind when look to buy a car. If there is such a long waiting period, some would not mind switching to another vehicle at a little more cost," said Neeraj Bandhu, automobile consulting firm CSM Worldwide's director (India).

He added that with most customers opting for the top-end Nano and its price difference with Maruti Suzuki's cheapest variant not being much, there could be some attrition.

While Nano LX (BSIII) is priced at Rs 1,80,447 (ex-showroom Kolkata), Maruti 800 costs Rs 1,92,693 (ex-showroom Kolkata).