After witnessing high delinquencies, banks have been reducing on their direct selling agents (DSAs) and ICICI Bank seems to take a step ahead on this path. The Bank has cut on its DSAs and is revisiting its used car financing portfolio.
Besides stopping the credit limits to its DSAs, ICICI has also cut the commission given to the dealers. This has thereby resulted in a benefit to the customers as the interest rates for the customers have come down to 14.5% from 16%. DSAs are a significant part of the used car loan business of any lender.
Earlier ICICI use to set a limit that served as a basis for the DSAs to finance used car loans. The paper work regarding such loans took 90-120 days to get a clean chit by the creditor. However the bank has now asked its customers to directly submit the files with it and reduced on the huge margins of the DSAs.
ICICI has been going slow in its auto loan business and has disbursed only Rs 20 crore loans during the last month. At the same time, HDFC Bank and Kotak Mahindra have also recorded lower disbursements.
In fact past six months, Kotak Mahindra has witnessed 30% fall in its outgoings. "The rejection rates for loan applications have gone up from 45% to 55%. However, sourcing from some company-owned dealerships has been good due to better customer profiles," said Kotak Mahindra Prime CEO Sumit Bali.
The interest rates for the used car loans are generally higher than the rates for new car loans. Currently they are suspended at around 17% and having stopped the dealer expenditure, the bank has lowered the rack rate to 14.5% from 16%.
ICICI's head of car and commercial vehicle loans, Ravi Narayanan said, "ICICI Bank has moved to a scenario of reduced dealership commissions and sourcing of partners. As a result, auto loan rates have realigned to about 14.5%."
Last year even HDFC Bank and Kotak Mahindra Bank had reduced their dealer commissions from 4-5% to 2%.