Rate war by PSBs causes NBFCs to lose market share in car loans

Chennai: NBFCs are losing market share to banks in auto and SUV financing and are shifting their focus to used cars, two-wheelers and commercial vehicles instead. A combination of capital restrictions under NBFCs and renewed aggression from public sector banks have led to this situation, auto financiers say. In an effort to grow their retail portfolio, PSU banks offer auto loans at 7.25% to 7.7% compared to NBFCs whose rates range from 8.75% to 11%.
While the State Bank of India offers car loans from 7.7%, others are even cheaper, with the Central Bank of India offering loans at 7.25%, followed by Canara Bank (7.3%). United Bank of India (7.4%) and Indian Overseas Bank (7.55%). “In recent times, NBFCs have lost market share to PSU banks that have become more aggressive and so has Tata Motor Finance,” said Tata Motors group CFO PB Balaji.
Unlike banks, NBFCs rely on wholesale funds. Banks are now slow to lend to finance companies, with RBI encouraging banks to use the co-loan model to take advantage of the NBFC network.
According to Mr. Ramaswamy, the finance director of Sundaram Finance, the bank has liquidity and can cut interest rates. “In some markets we are under pressure depending on how aggressive they get. It’s a mixed bag for us – we’re mainly targeting individuals with a higher risk profile and because of our good ratings, our fund costs have also come down, so in some regions we’ve lost market share and in others we’ve gained.”
Sundaram Finance saw a 20% gap in loan disbursements in the quarter ended September 2020. Cholamandalam Inv. & Fin. (CIFC) saw total payouts drop 30% year-over-year in its auto finance segment for the September 2020 quarter, and according to research reports from brokerage firm Motilal Oswal. This excludes the tractor and construction machinery (CE) segments.
Shriram Transport Finance, is providing Rs 650 crore in loans, which was half of last year. Also, 97% of the payouts were in the used vehicle segment. “Our focus is on individual and small truck owners who prefer to buy used vehicles. Normally, banks do not provide used vehicle loans as it is time consuming, requires vehicle appraisal and transfer of title deeds,” said Umesh Revankar, MD & CEO, Shriram Transport Finance. There are nearly 10,000 small and medium-sized NBFCs and 30,000-40,000 private lenders. Ditto for Muthoot Capital Services, which, said COO Madhu Alexiouse, deals with two-wheelers and used cars and not new cars or trucks.
The aggression of the PSU bank is also starting to show up on the balance sheets. Car loans sanctioned by PSU banks such as SBI rose 27% year-on-year, in the second quarter, and 7% on a sequential basis. For Indian Bank, the auto loan disbursement grew from Rs 3,243 crore in the June 2020 quarter to Rs 3,353 crore in the September quarter. A senior official at the SBI (Tamil Nadu and Puducherry Circle) said: “Unlike pre-Covid times, we saw car loan demand and disbursement double, even in hill stations like Ooty, in Tamil Nadu. The purchasing trend is unchanged and most of the demand is for cars under Rs 20 lakh.”

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