Indian Tech 

How RBI’s new rule is bad news for Indian smartphone companies, and likely good news for Chinese brands

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NEW DELHI: Indian handset makers are facing a double whammy with the loss of an inexpensive avenue of credit and the disruption caused by Reliance Retail’s JioPhone, forcing them to cut production of feature phones and risk losing further ground to Chinese rivals.

Funding costs shot up after the Reserve Bank of India scrapped letters of undertaking (LoUs) in the wake of the PNB scam earlier this year, which may lead to higher mobile phone prices. Experts said this and the production cut could result in domestic handset makers such as Lava, Micromax and Karbonn ceding further market share to rivals, mainly Chinese companies.

“In LoU funding, the industry used to get finance at rates between 2.5% and 3%. Now, for the same, we have to use our credit limits and that will come to 10-12%.

It is an 8% (percentage point) jump on the price,” said Ritesh Suneja, group chief financial officer of Lava International, a view backed by Karbonn Mobiles chairman Pardeep Jain.

 “It will become unviable to carry out trade due to thin operating margins. It will affect the growth of the business… our domestic mobile phone industry is already facing a very tough competition from foreign players,” Suneja added.
 LoUs are issued by domestic branches of Indian banks to enable customers get trade credit from banks overseas. Indian handset companies used LoUs to import components from China.
The Indian Cellular Association has written to the finance ministry seeking alternatives to LoUs so as to protect the government’s Make in India plan.
“Any kind of impact to local players will push them to further cede market share to competitors, especially Chinese, at a time when the market is going through a cyclic slowdown typical in the January-March quarter,” said Tarun Pathak, associate director at Hong Kong-based Counterpoint Technology Market Research.

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