Car Loans Drop In Tandem With Auto Recession

Disbursals in the auto finance segment have shown a discernible down trend, mirroring the deepening recession in the auto industry.

The decline in auto loans has been accentuated since September last, correlating with a fall in the volumes of cars sold since. According to a CMIE report (Monthly Review of the Indian Economy), while passenger car sales peaked at 45,100 cars in September 1997 representing a 13.7 per cent growth over the previous year, sales in October started tapering off, showed a 9.9 per cent negative growth over the corresponding last year figure of 31,400. Though there was a slight improvement in November, sales in December were again lower by 4.1 per cent.

 

This falling trend in vehicle sales is typically a cycle attributed to an increase in purchases during September and March, when full depreciation benefits can be claimed.

While October-February is cyclically a lean period, the credit squeeze experienced by most non-banking finance companies (NBFCs) in the auto finance business has clearly contributed further to the falling disbursals.

Gaurang Shah, chief operating officer at Kotak Mahindra Primus Ltd said those NBFCs riding on deposits to expand their auto finance portfolio are the ones worst hit. According to Vikram Ahuja of 20th Century Finance Corporation (TCFC), 'there has been a fall in terms of fresh business. Recovery rates in the industry have also worsened compared to the last year. TCFC has disbursed around Rs 20-25 crore during November-December last, this was lower at Rs 17-18 crore in January this year and is expected to go down further at Rs 15 crore for February.

Another NBFC, Lloyds Finance, has resorted to securitisation of a part of its portfolio in view of the funds crisis. L&T Finance has picked up a part of its portfolio. 'We are also being cautious and lending only where we are sure of recovery, and not just for the sake of numbers,'' Ramesh Panicker, vice president of the company said. Lloyds had dealt with, on an average, around Rs 15 crore in disbursals during the last three months, he claimed.

Traditionally into truck financing, Tata Finance, which recently focused its business on car loans, has also witnessed a fall in disbursals, which were at Rs 20 crore in October, Rs 16 crore in November and Rs 12 crore in December. '

There was an improvement in January to Rs 18.5 crore, thanks to the Auto Expo and the launch of Safari. However, the recession in the auto industry is likely to continue as long as there is a mismatch between existing capacities and demand,'' said Alok Kakar, chief manager, car finance, Tata Finance.

While the exit of smaller players in the auto finance business seems inevitable, the survivors are poised to see a marketing warfare in this industry.

Since interest rates charged by the players are more or less on par, creation of perceived value would determine buyer's preferences in the long run.