Discussion Forum

Create a new discussion topic

Created By

Post

Edited: 17/02/2009 14:37

View Properties

Supriyo Bhattacharjee

THE CURIOUS CASE OF THE CAR FINANCE MARKET.

Ever since the start of the liberalisation process it has become a common sight to observe PSUs losing customers and market share to their Private sector and Foreign counterparts . The banking industry is no different with newer banks like ICICI ,HDFC etc. giving the established PSBs a run for their money (literally). Forein banks to have proven to be strong players in areas where they have chosen to concentrate their energies.

In light of this, the following news item in the today's Businessline seems to hearld a change in scenario :

More car makers partner PSU banks for finance

The full story can be read here (http://www.thehindubusinessline.com/2009/02/13/stories/2009021351500200.htm) but I would like to concentrate on one sentence from the story :

"Public sector banks have definitely improved. Earlier, two-thirds of financing was from private banks and the remaining from public sector banks. Now, the ratio of state-owned banks is as high as 67 per cent,” said Mr Mayank Pareek, Executive Officer, Maruti Suzuki India Ltd.".

If I have got my maths right, this seems to indicate that the PSBs have managed to capture a 30% share in the car finance market from the Pvt. & Foreign banks in a liitle under a years time . One definitely would like to know how this has been made possible .

Some of the following issues might have helped :

1. ICICI Bank ( the largest player in the market a few months back ) has reduced its exposure to the sector after a ratings downgrade of its car loan portfolio by ICRA ( see story in ET : http://economictimes.indiatimes.com/News/News_By_Industry/Banking_Finance_/Banking/ICRA_downgrades_ICICI_Banks_car_loan_pool/articleshow/3367059.cms)

2. Similar is the case with HDFC ,Kotak Mahindra & Citibank .

The point is , do these banks know something which the PSBs do not? With the credit crunch affecting salaries & job security , car loans are likely to a see a higher level of non-payments . So it seems starnge that while the existing players are reducing thier exposure , the PSBs seems to be aggresively getting into the space. Seems to me to be a classic case of " Fools rush in where angels fear to tread" .

Will be glad to recieve your views.

Edited: 19/03/2009 11:16

View Properties

Jyoti Kumar Pandey

Well the generally stated / available reasons have been indicated in the last para viz. credit crunch, job security etc.; a different and a curious aspect of the issue also needs to be examined. With advent of more number of small variants and cheaper cars getting available, more number of customers would start procuring them. Empirical evidences have indicated that social and economic benefits accrue where more number of cars sell. More so, a 'feel good' factor sets in the economy which may be based on very fragile fundamentals. People tend to spend more for that what they are compelled to do, and in doing so borrow more, even beyond a threshold limit. Private sector banks because of their stronger market intelligence and customer profiling are in a position to predict better this behavior of consumers. So while they did make money as early movers in the market they are also ensuring less exposure to this segment now. It is very common to meet people who still believe that the economic turmoil is 'theirs' and not 'ours' and continue to live. The PSBs probably belong to this category and believe that they would tide over the crisis. This is in contrast to the private sector banks, with lesser systemic back-up, who rather than tiding over the crisis are getting ready to face and handle the crisis by reorienting exposures to those sectors where maximum returns have already been obtained.

Well there are other issues / angles, but I am sure this should be good enough to receive comments / kudos / crtici….