Good drive for vehicle financiers

2008-09 should see the auto loans mart triple to Rs 17,400 crore

R Chakrapani, a 29-year old kirana store owner in Chikmagalur, Karnataka, recently bought a Bajaj Pulsar with a bank loan.

He enjoys the early morning ride through this politically famous town, and gets to drop his little sister at the municipality school "" all for an EMI of Rs 1,493.

He no longer takes the long winding bus route and saves almost half an hour in travel time even though his cost of commuting has gone up marginally. At the end of 36 months, he will own the vehicle.

There are numerous Chakrapanis from far flung places across India who are no longer waiting to save up to own a motorcycle. They would rather leverage their cash flow and buy the vehicle now.

Anybody with a monthly income of Rs 5,000 can avail of a two-wheeler loan up to six times the net monthly income. He took a three-year loan at 9.25 per cent. This could be lowest interest rate one pays for a two-wheeler loan. At the upper end, the interest cost can be as much as 16 per cent.

Demand for two-wheelers in India is being fuelled by rising income levels, lack of adequate public transport facilities and higher aspiration levels in rural markets.

Two-wheeler sales in India is set to touch the 6 million mark by this year, says research and opinion firm, Crisinfac, while car sales has recently crossed the one million mark.

According to the marketing whitebook published by BusinessWorld, families having household income of Rs 45,000-2,15,000 have grown from 320 lakh in 1994-95 to 460 lakh in 2001-02. This number will grow to 750 lakh by 2005-06 "" consisting of 408 lakh families from urban India and 348 lakh from rural India.

"Now over four out of every 10 people who purchase a two-wheeler avail of bank finance. Three years back, the ratio was 3:10. It is expected to increase in favour of more people borrowing from banks for the same," says Chanda Kochhar, executive director, ICICI Bank.

The two-wheeler loan market which consists of loans for mopeds, scooters and predominantly motorcycles for 2003-04 was at Rs 6,500 crore and is expected to zip ahead at the rate of 20-22 per cent, says Crisinfac. Year 2008-09 should see the market close to triple at Rs 17,400 crore.

ICICI Bank is the market leader while IndusInd Bank, HDFC Bank and Centurion Bank are the other serious competitors.

Non-banking finance companies (NBFCs) account for 17.7 per cent of the two-wheeler loan market. Many public sector banks are now eyeing the market but the portfolio is much tougher to build vis-a-vis a auto loan portfolio.

In the case of two wheelers, the book grows at snails pace since ticket size of each loan is very small, repayments come in faster than car loans thereby bringing down the size of the book.

Additionally the financier needs strong sales and collection networks in the interiors of India since 40 per cent of two wheeler sales comes from there.