Académique Documents
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2.9
3 2.6 2.7 2.6
Y-o-Y Growth
2.5
2.5
2
1.5
1
0.5
0
FY12 Actual FY13 Actual FY14 Actual FY15 Actual FY16 FY17 FY18 FY19 FY20
India is expected to witness high growth in PV 2016-20 period as the economic environment improves amid a strong reform push by the new govt.
From the current year of 2015, the CAGR for the industry is forecasted at around 12%, taking the overall PV volume close to 5 million units annually
This growth is forecasted on the back of a assumption of positive GDP growth of around 7% (CAGR)
…and is poised for a breakout again, on the back of climbing PV sales
Vehicle sales have turned positive and are expected to continue the growth over next 5 years
FY11E FY12E FY13E FY14E FY15E CAGR FY16E FY17E FY18E FY19E FY20E CAGR
Volume (Mn) 2.5 2.6 2.7 2.5 2.6 1.0% 2.9 3.2 3.6 4.1 4.6 12.2%
Value (INR Bn) 1,192 1,289 1,392 1,341 1,450 5.0% 1,621 1,828 2,101 2,475 2,832 15.0%
With good monsoons, improved macro-economics & strong pipeline for new models, the industry is
headed towards a positive trajectory.
The Indian Auto Finance market has gone through several changes over
the last 18 years
Business - Strong auto sales growth (~20%) and -Liquidity crunch, rising defaults, -Intense competition leads to reduced
circumstances liquidity in economy attracts banks increase in interest rates dampens sales interest, product innovation
growth (~9%)
- Aggressive to capture auto financing - Reluctance to lend to retail segment -Focus on building strong OEM
market share relationships
Financiers needs
-Focus on increasing penetration and
volumes
OEM Financing
1998-2006 2007-2009 2010-2015
Strategy
All OEMs All OEMs; some OEMs tie up with local Maruti, Hyundai , Honda, GM, Fiat.
Financier market NBFCs to increase rural focus.
tie-ups Maruti with MMFSL
Maruti tied up with Citicorp Financial to No white label financiers in market after CMFL experiment failed
White-label finance form Citicorp Maruti Financial ltd
Limited presence: GMAC, Ford’s JV with Existing players exit; no new entrants VW (VW, Audi
Foreign captives Kotak , Skoda, Porsche), BMW, Daimler, Toyota
, Renault-Nissan, Ford
New PV finance disbursement have turned positive and will continue to grow
2000 1636
1403
1500 1169
997
1000 761 868
601 650 711 694
500
0
FY11E FY12E FY13E FY14E FY15E FY16P FY17P FY18P FY19P FY20P
The new PV finance market is attractive due to current substantial size, high finance penetration and
strong underlying asset sales, which will continue to drive the market growth in the future.
NBFCs and captives have emerged as the growth engines of the auto
financing industry
Changing competition landscape in new PV finance Top 10 players account for ~80% share of the new
120% PV financing market
Outstanding vehicle finance book (INR Bn)
36%
60% 30% 23%
Except SBI, most of the other PSU’s have lost significant share
40% due to high NPAs and tight credit policies following the crisis.
Private Sector Bank Public Sector Bank NBFCs Captives Captives have increased their share too by bundled products.
The new PV financing is highly competitive in nature with private banks holding on to the market; NBFCs and captives have been
able to gain market share by identifying niche in terms of under-catered regions or innovative products
Finance Ratio
40%
30% 30%
[VALUE]
Finance
Cash
[VALUE]
DEALER DSA DSA DST
Source
Dealer DSA Independent DSA & Financier Affiliated DSA Bank Direct Sales Team (DST)
• Loans sourced by Dealer’s sales • Uses own customer’s network to source loans and help • Financier's internal sales team.
executive at dealership (generally with purchase of vehicle. • Uses bank's internal customer database
linked to INF) • No formal agreements with Financiers. for lead generation.
• Financier affiliated DSA has agreement with Financiers • Receives lowest pay-out incentives.
• Non-standardized Dealer pay-outs to source loans. Incentive based commission (i.e: non- Target driven
( 0 percent to 4 percent) payroll)
Auto Loan Origination- Finance At Dealership- Sales
Finance
Finance Manager
Executive/Banker
GM- Sales
Dealer Sales Executive
• Negotiates payouts with financiers & handles channel financing.
• Responsible for Dealer profitability across group or single site plus RSOs and
branches. • Customer facing, sales focused role.
• Offers finance to customers during vehicle purchase process
• Receives incentives- Foreign trips, Sodexo, cash per login
Sales/Finance Manager (Key Man — Finance Penetration)
Bank Representative (Bank's payroll)
• Motivating Sales Executives to achieve monthly targets.
• Pushes Financiers for retail approvals, timely payments, deviations
• Ensures accuracy of applications and document requirements.
• Financier's not strict with finance targets due to competition, linked to INF • Uploads or couriers application file to processing center.
Dealer’s customer acquisition experience
Process 1 :- Application
1
1.1 Customer is Customer visits the Customer compares
Awareness/ informed about auto
Customer receives
targeted offers for auto
financier financiers products
finance product by the branch/website/mobile through website such as
Knowledge DSE*
loan products
to obtain information cardekho etc
2
2.2 DSE suggests 2.4 FE* logins the Customer receives pre-
2.1 Customer provides 2.3 Customer provides
financing customer application approved loan offer
Select & Apply basic information for
product/provider as per
initial documentation to
and uploads scanned basis existing
pre-qualification the DSE
customer profile. copy relationship
Dealer Sales Executive Call Center Executive Financial Systems Digital Financial Executive Field execution
Standard Leading
Dealer-Led Bank-Led Third Party-led Pain points
Practice Practice
Underwriting Process
Process 2 :- Underwriting
4
Customer track
Loan sanction 4.1 Field Investigation
and Telephone
4.2 Credit assessment
conducted as per
4.3 Deviation checked
and approvals taken as
4.4 Approval
communicated to
application status
through Net-
(Hard Approval) verification triggered internal scoring models per authority matrix customer/dealer
banking/Phone-banking
Dealer Sales Executive Call Center Executive Financial Systems Digital Financial Executive Field execution
Standard Leading
Dealer-Led Bank-Led Third Party-led Pain points
Practice Practice
Pre-Sanction Stage- Private Banks & NBFC (Rural)
• Basic Docs (KYC) -ID & Address Proof • Rigid Document • Supporting Document Flexibility -
• Supporting Docs -Income & Employment Proof Requirement, for PSU banks Qualitative approach to credit appraisal
2. File Upload
• File Upload -Bank rep. checks & uploads app at • Limited Presence at Dealer
dealership • File Transfer -Physical files are passed to CAM center
3. Credit Bureau
Reports
• Credit Information Report -CIBIL, Experion, Equifax, CIBIL score between 300-900, Over 700, good customer, missed payments & defaults, 3yrs history
4. Document
Verification
• Validate Authenticity -Soft copies, 15-20% sample of hard copies (PAMAC), conducted by RCU teams at RO’s, O/S staff
5. Customer
Verification
• ID Verification -FI Agency, Home or workplace visit, phone for low risk customers, FI’s from RO’s, O/S staff, risks delaying approval
Back Office Operations- Post Sanction
• Loan agreement, PDC’s, Margin • Data transferred from LOS to LMS • Automated process within LMS, with EMI
receipts, Insurance policy scheduler
copy, registration docs, are verified at • LOS: Loan origination System- All detailed
banks CPU center information of customer with supporting • After all details are captured, a final pre
• Checked: No errors, all relevant pages documents attached. disbursal approval is required before
signed disbursal.
• LMS: Loan Management System-Additional
details are entered for customer’s payment • This approval is done by another credit
• Most of the forms are filled by sales information like EMI, Payment date, tenure manager or one up guy.
executive or banking executive. ECS, bank details etc.
• Second approval is just maker and checker
• PDC details are entered & verified. thing.
• Within LMS, Loan Account Number (LAN) is • In some banks, portfolio’s health is linked to
generated, used for all correspondence. KPI and not only amount disbursed.
Best in class customer acquisition experience by enabling faster
approvals
Process 3 :- Disbursement
5
5.3 FE visits customer to
5.1 List of disbursement 5.2 Customer drops off 5.4 Physical file transfer
collect the documents
Documentation documents shared with documents at the
from customer’s
from dealership to
customer dealership/branch financiers office
residence/office
6
Execution of loan
Verification of original agreement at customer Dealer submits down
Disbursement documents office/residence or bank payment receipt
Loan disbursed to dealer
branch
Dealer Sales Executive Call Center Executive Financial Systems Digital Financial Executive Field execution
Standard Leading
Dealer-Led Bank-Led Third Party-led Pain points
Practice Practice
Post-Sanction & Disbursal Stage
1. Car Loan agreement 1. Cases adjusted against INF account. 1. Final Invoice
2. 6 PDC’s 2. Normal case, FI’s use RTGS to transfer funds 2. Registration receipt
3. Margin money receipts to dealer 3. Copy of RC
4. Insurance Policy Copy 3. Dealer Payouts are paid monthly
5. Registration Docs( F-34/5) 4. Incentives in cash or kind are paid to sales
executive, finance managers etc.
Process 5. Welcome message, call is made & Kit is sent
to customer with amortization chart.
1. Sales executive collects post sanction docs.
2. FI’s operations team examines & issues DO
3. Payment schedule is updated in LMS
4. Application forms & PDC’s stored in central
hub
5. Final pre-disbursal authorization required
prior funds being released
Back Office Operations- Post Disbursement
Process
Amortization chart
Loan Repayment Methods
• ECS works just like auto-pay. • Pre-signed PDC’s are collected for the
• Customer visits branch & pays EMI
tenure-1 of the loan.
• Customer authorizes their bank account to • PDC must be presented within 3 months
• Sales representative or collection
be debited for X EMI on Y date every of the date stated.
agents visits and collects EMI
month
• PDC’s are stored at centralized locations.
[PERCENTAGE]
[VALUE]%
[PERCENTAGE
PDC ] PDC
ECS ECS
[PERCENTAGE
Cash Cash
[PERCENTAGE ]
]
[PERCENTAGE]
• More ECS leads to less risk of human error and less human resource required for processing
• Banking habits are changing in rural India, with financial inclusion the future looks brighter.
• PDC’s usage will fall further as banks have been advised not to accept any fresh PDC’s in locations where the facility of ECS is available
( RBI circular July, 2013)
Payment Cycle
• Payment date is determined when the funds are disbursed. • Financier’s prefer fewer payment cycles as this increases the efficiency of
processing payments.
• Usually banks have 2 or 3 payment cycles (dates) per month.
• There is higher chance of payments bouncing at the end of the month, which
negatively impacts collection.
Deploy advanced credit assessment measures to price the risk
appropriately
Leading Some captives have deployed risk base pricing models, to provide interest rate and LTV based on customer risk profile and
Practices asset quality of the geographic location
Scoring parameters Scoring Decision Process Decision Typical Profile Underwriting decision
Objective Prevent delinquencies Collect better to minimize flow Recover as much as possible
Activity Tele-calling and SMS/IVR reminders Field collections Restructuring Repossessions and recovery
NBFC Bank
Cost of funds 8.5% NBFC rely on expensive market instruments such as bank Cost of funds 6.0%
loan, NCDs and CPs driving up cost of fund
Margin 4.5% Margin 4.5%
Fee Income 0.5% Fee income primarily includes processing fee on loans Fee Income 0.5%
Opex 2.5% Banks have higher allocated opex, which consist of employee Opex 3.0%
expenses, branches, technology and also increased compliance
costs
Credit losses 0.5% Credit losses in the industry are stable at 0.4%-0.8%
Credit losses 0.5%
RoA RoA
2.0% Overall NBFCs make higher RoA than banks over the long term 1.5%
on account of higher yields and portfolio mix
Retail Issue Analysis
Pre-Sanction • High lead time in physical transfer of docs. • Delays loan approval
• Slower customer verification (FI) • Decreases customer satisfaction
• Risk of customer cancelling loan
Pre-Disbursal • Customer and sales executive unable to track loan application • Delays loan approval
progress
Post- Disbursal • Docs ( RC copy, Invoice etc not matching) • Increase risk of fraudulent activities
Servicing • Weak support for any request • Customer gets frustrated, delays EMI’s
THANK YOU