Two-wheeler finance sector growth may inch up next fiscal

The two-wheeler finance industry, which witnessed a 25-30 per cent decline in 2008-09, is expected to register flat or slightly incremental growth at about 4-5 per cent in 2009-2010, according to senior bank officials and industry experts.

With a number of private players exiting this segment either completely or in selected areas due to rising default rates and high operating expenses, growth in two-wheeler finance is likely to be spearheaded by public sector banks, which have a wider reach and broader customer base. The growth will also be fuelled by the increase in the number of underlying asset, according to Mr Manoj Mohta, Head Research — Crisil Research.

"The two-wheeler finance industry contracted by 25-30 per cent in 2008-09; however, there could be a modest growth in 2009-2010 due to an increase in the underlying asset and the support provided by public sector banks," he said.

Cautious growth

Public sector banks, Mr Mohta pointed out, would try to increase their market share in the two-wheeler finance segment but they would not be as aggressive as in home or auto loans owing to the high delinquency rate in this segment.

PSBs would move cautiously to partially fill the vacuum created by the exit of private players, said a senior official at a public sector bank. "Two-wheeler finance portfolio offers potential and can be beneficial for banks to cross-sell products if the customers are well selected," he said.

UCO Bank is hopeful of disbursing Rs 200 crore worth fresh two-wheeler loans in 2009-2010. "Many private players have exited this segment and this gives us more scope for lending. We are hopeful of disbursing Rs 200 crore worth fresh loans this year," said Mr S.K. Goel, Chairman and Managing Director, UCO Bank. The bank's two-wheeler loan portfolio currently stands at about Rs 100 crore.

Stress on due diligence

It has tied up with Hero Honda, Bajaj and TVS for two-wheeler loans. "The urban and semi-urban market has a good potential and we will try to tap it," Mr Goel said.

Allahabad Bank expects 10-15 per cent growth in the segment, according to a senior official at the bank. "If the identification of customer is correct, income level is taken into consideration and a due diligence process is in place then I do not see any reason why the portfolio should not do well," said Mr K.R. Kamath, Chairman and Managing Director, Allahabad Bank.

United Bank of India gives two-wheeler loans to customers who have a salary-linked account with the bank in order to ensure that the loan does not turn into an NPA, said Mr T.M. Bhasin, Executive Director of the bank.