The Hindu Business Line : Two-wheeler loan rates high, but sales pick up

New Delhi, July 19 Two-wheeler sales have picked up this fiscal defying economic slowdown. Loan waivers, excise duty cut and high support prices on farm crops have enabled sales to grow at about 15 per cent.

Ironically, two-wheeler financing is not yet picking up and with a good reason — it is costly. Interest rates on two-wheeler loans are still as high as 21-24 per cent, says Mr Ravi Sud, Chief Financial Officer, Hero Honda.

The two-wheeler market, mostly dominated by motorcycles, accounts for 75 per cent of the overall vehicles market in the country. Last fiscal, out of the 9.7 million vehicles sold in India, 7.4 million were two-wheelers, according to the data compiled by the Society of Indian Automobile Manufacturers. It is a market potentially worth about Rs 25,000 crore.

Despite this, banks and non-banking finance companies do not find it lucrative to tap the large market. Small ticket size of the loan, high operating costs in the rural and semi-urban areas and fear of non-performing assets are cited as the risks that curb greater lending in this sphere.

Private sector banks such as HDFC Bank, a leading player in the two-wheeler finance, offer a flat rate of 12.50 per cent (about 22-24 per cent on a declining balance basis). Even some non-banking finance companies charge a flat interest rate of 18 per cent (about 34 per cent on a declining balance basis). Fullerton, a subsidiary of the Singapore-based Temasek, offers loans at a flat rate of between 10 and 13 per cent. Generally loans in rural and semi-urban areas are costlier by 2 to 3 percentage points than those prevailing in urban areas, say officials.

Mr Sud said that high interest rates and reluctance among the banks had brought down the number of bikes purchased through finance. “In 2006, when two-wheeler finance was at its peak, about 55 per cent of our bikes were financed. Now it is 25 per cent.”

So what do financiers say?

“Two-wheeler loans are a small portfolio. Non-performing assets are still a concern. By keeping interest rates high we can ensure that only a genuine customer will come,” said an industry official from a leading public sector bank.

Related Stories:
Tight financing impacting 2-wheeler sales: Honda CEO
Two-wheeler finance sector growth may inch up next fiscal

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