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Mumbai: Retail finance remains a pressing concern for the two-wheeler market at large, but look who's cornering all the loans still being handed out -- Hero Honda, the market leader by a yard and half.
.art_img_class {width:200px;background:#f0f0f0;margin-top:1em;font-size:0.7em;display:none;}Somewhat sadly for customers of Bajaj Auto and TVS Motor, products of these two companies are a no-no for most major lenders, particularly private banks, which used to be quite aggressive players until not so long ago.
The domestic two-wheeler market grew 2.6% last fiscal. But that doesn't seem to have enthused the lenders yet, although many have lately opened up to financing four-wheelers.
ICICI Bank and HDFC Bank, two major players earlier, have reduced exposure to the two-wheeler market, due largely to fraudulent activities and difficulty in vehicle re-possession.
Going by Ashok Khanna, executive vice-president and business head, car and two-wheeler loans, HDFC Bank, two-wheeler financing is a high-risk business.
"While the returns are high, a lot of support is needed from the original equipment manufacturers and dealers. This business is highly manpower-driven and we have to incur high operational costs."
"We have not exited from the business, but definitely reduced our exposure. What we have done now is portfolio correction," says Khanna.
The bulk of the loans being made are to customers of Hero Honda and Honda Motorcycle and Scooters India (HMSI).
"Today, out of our total book size of Rs 1,600 crore, 85% credit is given to Hero Honda and HMSI and 15% to Suzuki and Yamaha," says Khanna. "In case of Bajaj and TVS, we suffered the highest delinquencies, bad customers and maximum loan losses."
An official of another major private bank agrees, while refusing to be named. According to him, the finance-to-cash ratio, which used to be 35:65 a year-and-half back, down from 80:20 earlier, is today at 50:50 for most players. "Even if we go back to the 80:20 ratio, which existed 5-6 years back, I don't think any financer will enter the two-wheeler segment. Our book size is nearly zero, because the transaction cost is very high. Besides, the ticket size is small. But despite the odds, Hero Honda and HMSI are good bets while Bajaj and TVS are a no-no."
Khanna also draws attention to the fact that Bajaj and TVS had demanded lower interest rates, higher incentives for dealers, low down payments and even 1% commission when the financiers were aggressive in this space. "Due to these, a lot of other financers, like GE Capital, Citi Financial and DBS Cholamandalam quit the market and ICICI is almost non-existent."
Officials of Bajaj and TVS agree that greater retail finance would boost sales. But until the financiers become active again, they must make do with alternatives.
S Sridhar, chief operating officer (two-wheelers), Bajaj Auto says, "Since the private banks have curtailed their exposure, we now depend on our financial arm, Bajaj Auto Financial Ltd. Through the financial arm, we finance 20,000 vehicles a month."
That's an option TVS Motor doesn't have. H S Goindi, head of sales, service and Marketing, TVS Motor, says sales would increase if finance from banks increases.
"Around 25% of TVS products are financed through local moneylenders and Fullerton, and some bit by HDFC. Some 75% are cash purchases," he says.
What the financers want from the OEMs is cooperation in terms of assistance in collection of dues, repossession of vehicles and resale of repossessed vehicles at reasonable prices.
"Companies like Hero Honda, HMSI, Suzuki and Yamaha now understand this and are sensitive towards our needs as well," says Khanna.
Khanna in fact says their expenses have halved since they stopped dealing with Bajaj and TVS. "Bajaj's policy was always heavily finance-driven. They acquired poor quality customers through their low down payment scheme. These customers came from lower income strata that could not pay high amount of down payment and subsequent high instalments. Thus, the product suffered," he says.
Currently, HDFC Bank accounts for nearly half of all two-wheeler loans. The rest is made up by IndusInd Bank, Fullerton, Sriram Transport and ICICI Bank to some extent.
The rate of interest charged by these players is a whopping 22-25%. Khanna justifies this saying one cannot operate in this segment without charging a high rate of interest.
Source : Why Hero Honda sells, but Bajaj, TVS don't
.art_img_class {width:200px;background:#f0f0f0;margin-top:1em;font-size:0.7em;display:none;}Somewhat sadly for customers of Bajaj Auto and TVS Motor, products of these two companies are a no-no for most major lenders, particularly private banks, which used to be quite aggressive players until not so long ago.
The domestic two-wheeler market grew 2.6% last fiscal. But that doesn't seem to have enthused the lenders yet, although many have lately opened up to financing four-wheelers.
ICICI Bank and HDFC Bank, two major players earlier, have reduced exposure to the two-wheeler market, due largely to fraudulent activities and difficulty in vehicle re-possession.
Going by Ashok Khanna, executive vice-president and business head, car and two-wheeler loans, HDFC Bank, two-wheeler financing is a high-risk business.
"While the returns are high, a lot of support is needed from the original equipment manufacturers and dealers. This business is highly manpower-driven and we have to incur high operational costs."
"We have not exited from the business, but definitely reduced our exposure. What we have done now is portfolio correction," says Khanna.
The bulk of the loans being made are to customers of Hero Honda and Honda Motorcycle and Scooters India (HMSI).
"Today, out of our total book size of Rs 1,600 crore, 85% credit is given to Hero Honda and HMSI and 15% to Suzuki and Yamaha," says Khanna. "In case of Bajaj and TVS, we suffered the highest delinquencies, bad customers and maximum loan losses."
An official of another major private bank agrees, while refusing to be named. According to him, the finance-to-cash ratio, which used to be 35:65 a year-and-half back, down from 80:20 earlier, is today at 50:50 for most players. "Even if we go back to the 80:20 ratio, which existed 5-6 years back, I don't think any financer will enter the two-wheeler segment. Our book size is nearly zero, because the transaction cost is very high. Besides, the ticket size is small. But despite the odds, Hero Honda and HMSI are good bets while Bajaj and TVS are a no-no."
Khanna also draws attention to the fact that Bajaj and TVS had demanded lower interest rates, higher incentives for dealers, low down payments and even 1% commission when the financiers were aggressive in this space. "Due to these, a lot of other financers, like GE Capital, Citi Financial and DBS Cholamandalam quit the market and ICICI is almost non-existent."
Officials of Bajaj and TVS agree that greater retail finance would boost sales. But until the financiers become active again, they must make do with alternatives.
S Sridhar, chief operating officer (two-wheelers), Bajaj Auto says, "Since the private banks have curtailed their exposure, we now depend on our financial arm, Bajaj Auto Financial Ltd. Through the financial arm, we finance 20,000 vehicles a month."
That's an option TVS Motor doesn't have. H S Goindi, head of sales, service and Marketing, TVS Motor, says sales would increase if finance from banks increases.
"Around 25% of TVS products are financed through local moneylenders and Fullerton, and some bit by HDFC. Some 75% are cash purchases," he says.
What the financers want from the OEMs is cooperation in terms of assistance in collection of dues, repossession of vehicles and resale of repossessed vehicles at reasonable prices.
"Companies like Hero Honda, HMSI, Suzuki and Yamaha now understand this and are sensitive towards our needs as well," says Khanna.
Khanna in fact says their expenses have halved since they stopped dealing with Bajaj and TVS. "Bajaj's policy was always heavily finance-driven. They acquired poor quality customers through their low down payment scheme. These customers came from lower income strata that could not pay high amount of down payment and subsequent high instalments. Thus, the product suffered," he says.
Currently, HDFC Bank accounts for nearly half of all two-wheeler loans. The rest is made up by IndusInd Bank, Fullerton, Sriram Transport and ICICI Bank to some extent.
The rate of interest charged by these players is a whopping 22-25%. Khanna justifies this saying one cannot operate in this segment without charging a high rate of interest.
Source : Why Hero Honda sells, but Bajaj, TVS don't
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