Nbfcs To Raise Disbursals Via Auto Finance This Year

As corporate finance and merchant banking continue to stagnate, non-banking finance companies (NBFCs) are drawing up ambitious plans for auto finance, which may be a cash cow for yet another year.

Leading players - including Kotak Mahindra Primus (KMPL), Lloyds Finance, Apple Finance, Alpic Finance, Birla Global Finance (BGF) are planning to increase disbursals in auto finance by 20 to 80 per cent in 1997-98 over that of 1996-97. Over 50 to 90 per cent of funds raised will be used to finance commercial vehicles.

Auto finance contributed 10 to 15 per cent of total business for NBFCs last fiscal and is expected to contribute over 30 per cent this year. Of the total disbursals of Rs 13,000 crore, NBFCs accounted for Rs 4,000 crore.

 

KMPL, a dedicated auto finance company set up less than a year ago, has financed 9000 cars so far and targets disbursals of Rs 600 crore this year. Earlier, Kotak Mahindra Finance had disbursed Rs 330 crore in 1994-95 and Rs 450 crore in 1995-96.

Dipak Gupta, chief executive officer, said that KMPLS defaults were limited to 0.5 per cent. However, he stressed the cost of defaults are very high, especially since margins were reduced following competition.

Twentieth Century Finance Corporation (TCFC) will increase focus on value added products, distribution capacity, advertising and market positioning, said Atul Jain , senior manager of the company. Its income from vehicle finance constituted over 50 per cent of revenue last year.

Lloyds Finance disbursed most of its Rs 500 crore fixed deposits corpus in auto finance last year. It plans to disburse Rs 700 crore this year. According to the companys vice president, Ramesh Panicker, the focus this year will be on minimising defaults.

Alpic Finance, which disbursed 30 per cent of funds in the sector last year, will increase disbursals by 80 per cent. According to A K Chatterjee, senior vice president, Alpic will focus on strategic alliances with manufacturers.

Birla Global Finance (BGL), whose last years disbursals were 60 per cent, will increase it by around 20 per cent. According to V Sridharan, country head, lease and hire purchase, BGL will increasingly raise long term resources through various instruments other than debentures.

Apple Finance disbursed Rs 540 crore of its funds portfolio of Rs 650 crore in auto finance last year. Vikram Narayan, chief executive, said Apple stressed on distribution, back room operations, personnel, resources and systems.

The effective lending rates have bottomed to 25 per cent. However, with value added services, cost to customers is reduced by 2 to 3 percentage points. These services are set to become the norm as all NBFCs increasingly enter into strategic alliances with manufacturers to offer various schemes round the year.

The sector is anticipating structural changes as manufacturer-supported, dedicated auto finance companies enter the fray. Several foreign players General Motors Acceptance Corporation, Hyundai Finance, Fiat Finance Company, Mercedes Benz and Chrysler are expected to set up dedicated auto finance subsidiaries this year.

NBFCs such as Lloyds Finance, TCFC, Apple Finance and BGF are open to the idea of a joint venture or strategic alliance with a foreign player.

However, leading NBFCs are facing dwindling resources and defaults, which ranged between 0.5 and 2 per cent as against below 1 per cent the previous year. Moreover, the growth of the auto industry has slowed down to 18 per cent in 1996-97 from 26 per cent in 1995-96 with leading brands including Maruti Esteem and Cielo straddled with rising stocks. The projected growth this year is 15 per cent.

Intense competition has caused spreads to reduce by one percentage point from 5 per cent a year ago to 4 per cent at present. While cost of borrowing has also come down from around 19 per cent to 15 per cent, the effects are yet to be felt.

As the focus shifts to long term resources, NBFCs see securitisation of car loan portfolios as inevitable. Apple Finance, Lloyds Finance, BGF, Kotak Mahindra Primus and TCFC are considering securitisation.