Status of Hire Purchase in India

Hire purchase act of India

The Hire Purchase Act was passed in 1972, which is controlling the hire purchase transactions. The hire purchase finance companies come under non banking finance companies (NBFCs) and are subject to the regulations of Reserve Bank of India Act (Section 45[i]).

Hire purchase activity in India

Earlier, the non banking finance companies were accepting deposits from the public by offering attractive interest rates and were collecting higher interest rates from the buyers of durable goods on hire purchase. But in 1998, certain restrictions were imposed on the acceptance of deposits by non banking finance companies involved in hire purchase finance. Since then, the acceptance of deposits by these companies has been curtailed, as a result of which there has been some decline in the hire purchase activities in our country.

How hire purchase activity is boosted in India?

To overcome the above handicap, many automobile companies such as Maruti Udyog Limited and Tatas have themselves promoted their own hire purchase finance companies. Ashok Leyland Finance has been there already in the market. The foreign banking companies are also undertaking hire purchase finance and they are a big competitor to the Indian hire purchase finance companies.

Role of commercial banks in growth of hire purchase in India

Of late, Housing Finance has been taken up on hire purchase by most of the commercial banks and with the introduction of floating interest rate, it is picking up both in urban and rural areas. The floating rate of interest is beneficial to the customer as long as the interest rate is declining. Even banks are allowing the swapping of the interest rate. By this, the old loan with the higher interest rate is repaid and it is replaced by a new loan with a lower rate of interest.

Thus, in India hire purchase finance is mainly encouraged by the middle income group consumers in the purchase of houses and durable goods, whereas in industries, it is leasing which is becoming very popular.