NBFCs lose auto loan market share due to PSB rate war

CHENNAI: NBFCs are losing market share to banks in financing cars and SUVs and instead focus on used cars, two-wheelers and commercial vehicles. A combination of capital constraints among NBFCs and renewed aggression on public sector banks (PSBs) has led to this situation, auto financiers said. 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 (SBI) offers auto loans starting at 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, which have become more aggressive and which include Tata Motor Finance,” said Tata Motors Group CFO, PB Balaji. Unlike banks, NBFCs rely on wholesale funds. Banks are now slowing lending to finance companies, with the RBI encouraging banks to adopt the co-lending model to take advantage of the NBFC network.
According to M Ramaswamy, CFO of Sundaram Finance, banks are overflowing with liquidity and can lower rates. “We are facing pressures on certain markets, depending on their degree of aggression. It’s a mixed bag for us – we mainly cater to people with higher risk profiles and due to our good ratings our cost of funds has gone down as well. So in some regions we have lost market share and in others we have gained it, ”he said.

Sundaram Finance recorded a 20% variance in loan disbursements during the quarter ended September 2020. Cholamandalam Investment & Finance Company (CIFC) saw total disbursements decline 30% year-on-year in its auto finance segment for the quarter ended in September. 2020, according to research reports from brokerage firm Motilal Oswal. This excludes the Tractor and Construction Machinery (CE) segments.
Shriram Transport Finance disbursed 650 crore in loans, half of last year. In addition, 97% of disbursements were made in the used vehicle segment. “We focus on individuals and owners of small trucks who prefer to buy used vehicles. Normally, banks don’t lend used vehicles because it takes time, requires vehicle valuation and ownership transfer documents, ”said Umesh Revankar, Managing Director and CEO of Shriram Transport Finance.

Priscilla C. Carnegie