On Friday, Maruti Suzuki, the largest passenger vehicle manufacturer in the country, announced signing a memorandum of understanding (MoU) with Bank of Baroda to improve the credit facility for its dealers and customers.

The company's statement said that the dealer inventory financing would be in accordance with Bank of Baroda's existing Supply Chain Finance.

The new deal will help dealers who are facing credit crunch after leading private and public sector banks decided to lower their exposure to automobile inventor funding. With the current NBFC and IL&FS crisis, banks have tightened their lending policies to avoid mounting bad loans.

Strict credit norms were imposed on automobile dealers, due to the rise of bad loans in this sector. Dealers were asked to provide collateral for the credit based on their financial position.

Automobile companies make arrangements with banks to provide finance options to its prospective customers. Dealers usually borrow money from banks to cover operational expenses.

Shashank Srivastava, executive director, marketing and sales, Maruti Suzuki, said that the company is confident that its collaboration with BoB will "offer finance solutions to our customers and dealer partners".