To push car loans, public sector banks dole out dealer dollies

Next time you walk into a car showroom, don’t be surprised if someone tries to sell you a loan from one of the public sector banks.

So far, the auto loan segment has been dominated by private sector banks as their state-owned peers kept away due to lack of transparency amid the involvement of a third party.
But now, at least three public sector banks are seriously looking at entering this space.

And in a bid to push their products, they would even be offering a commission of 1-3% to the automobile dealers, much like the private players.

“We have discussed with the committee. It should be debated in the Operational Risk Management Committee meeting. We have also discussed this with executives, but it should come in a structured form,” said B Vara Prasad, general manager (retail, payments and settlements and third party products), Union Bank of India.

BA Prabhakar, executive director, Bank of India also confirmed that they are discussing and finalising procedures to enter the space with a jazzed-up marketing strategy.

“If competition pushes me tomorrow then I will also have to do this,” said a senior official at a third public sector bank, requesting anonymity. Dealers are cheering the idea already.

Going by them, the commission received from the lenders mostly goes to executives who work hard to achieve good sales numbers. With more lenders in the fray, the incentive could go a long way in boosting revenues, particularly at a time when fewer enquiries are converting into sales.
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Auto dealers, however, point out that such commissions will help boost car sales, not so much that of two-wheelers.
“Around 85-90% of our customers buy two-wheelers on a bulk payment basis. Only a marginal number goes for financing. So this really does not make a difference to executives. But customers will get better options to ask for financing,” said a South Mumbai-based two-wheeler dealer.
Still, some lenders remain apprehensive in view of the higher risk involved.
“As part of our corporate policy, we do not encourage any middleman in loan disbursals. We have also issued a circular to all branches in the matter. It unnecessarily propagates an unhealthy nexus,” said Ram Sangapure, general manager with Central Bank of India, which has a vehicle loan book of around Rs 1,000 crore.

Dealers, however, play down the risk saying think most customers are willing to pay back car loans as soon as possible.

“The bad loan ratio is less than 1% in the car loan business. Tomorrow, if the customer wants to sell the car, paying back loans is very important. Also, most people understand that repossession of a car for not paying back looks bad in the eyes of the society,” said another car dealer from Mumbai.

Auto dealers, however, point out that such commissions will help boost car sales, not so much that of two-wheelers.

“Around 85-90% of our customers buy two-wheelers on a bulk payment basis. Only a marginal number goes for financing. So this really does not make a difference to executives. But customers will get better options to ask for financing,” said a South Mumbai-based two-wheeler dealer.

Still, some lenders remain apprehensive in view of the higher risk involved.

“As part of our corporate policy, we do not encourage any middleman in loan disbursals. We have also issued a circular to all branches in the matter. It unnecessarily propagates an unhealthy nexus,” said Ram Sangapure, general manager with Central Bank of India, which has a vehicle loan book of around Rs 1,000 crore.

Dealers, however, play down the risk saying think most customers are willing to pay back car loans as soon as possible.
“The bad loan ratio is less than 1% in the car loan business.

Tomorrow, if the customer wants to sell the car, paying back loans is very important. Also, most people understand that repossession of a car for not paying back looks bad in the eyes of the society,” said another car dealer from Mumbai.