Private banks which had made a temporary exit from the vehicle finance market following the global meltdown have now decided to make a homecoming.

These banks had to make a virtual exit from the Indian market because of rising defaults and tighter norms applied in the domestic market.

According to industry experts, car manufacturers and dealers, the private banks are adopting a plethora of measures to make a re entry in the market and also to grab the market share. The measures include offering low interest rates, higher loan-to-value (LTV) ratio and better and faster services vis-à-vis the public sector banks (PSBs).

The market share of private banks had dropped to 40-50 % in the automobile market in 2008-09, a decline from 55 %, according to Mr. Manoj Mohta, Head-Research, CRISIL Ltd.

On the other hand, the PSBs experienced a 10-15% increase in the market share during the latter part of 2008 and early parts of 2009 from 20-25 % earlier owing to attractive interest rates, Mr. Mohta said.

"With the restructuring in NPAs there has been an improvement in the portfolio and asset quality and the private players slowly started making their way back into the auto finance market post-March 2009 with tightened underwriting norms and competitive interest rates. By the middle of 2010 there will be a reversal in situation and private banks' share will go up to their earlier levels," he said.

Further elaborating his stance Mr. Mohta said, "Post-April, the interest rates will inch up as the teaser rates might be withdrawn and PSBs will find it difficult to carry on with their aggressive strategies. So once the arbitrage of rates is not there then service will become the deciding factor for a customer."

"Liquidity was the primary reason for the temporary stepping down of private banks from auto finance, now with the liquidity situation improving they have once again become very aggressive," said Mr. Jnaneswar Sen, Vice President - Marketing, Honda Siel Cars India Ltd.

The private banks would now be focusing on profile based lending rather than asset based lending. "Earlier, when a customer came to us for loans we primarily took into consideration the down payment he was willing to make and his loan requirement and were ready to disburse once the KYC norms were fulfilled. But now we are asking more questions such as his income, his installment repaying capacity etc, and if he is not able to answer these then his loan is not sanctioned," said a senior official at an auto finance company.

Private sector lender Axis Bank, which currently lends out auto loans worth about Rs 150 crore on a monthly basis, plans to grow it to Rs 250 crore every month.

The bank plans to increase its share of auto loan portfolio to 25 % of its retail loan portfolio over the next year.

Auto loans currently account for about 17 per cent of the bank's total retail portfolio, which stands at Rs 19,000 crore, said Mr. S.K. Chakrabarti, Executive Director, Retail Banking, SME and Agri, Axis Bank.
"This is a loan-driven purchase so with the increase in production and sales the finance also increases. We are currently a small player in this field but we want to enhance our portfolio," Mr. Chakrabarti said.