ICICI Bank to do aggressive lending in the car, truck loans segment

ICICI Bank, India’s second-largest lender two years ago had stopped giving auto loans due to rise in defaults but now it is planning to do aggressive lending in the car and truck loans segment. This time bank will not give loans through sales agent in favor of auto dealers. Bank is targeting car and truck dealers with an aim to revive auto loans, although it is going cautioned on financing two-wheelers. Recently a pan-India meet of over 180 car dealers was organized by the bank to discuss this issue.

A senior auto industry executive of ICICI bank said, “ICICI Bank will lend much more now that will bring incremental growth to the passenger-car industry.” Previously, three years ago ICICI Bank used to be the biggest lender of auto loans. But increase in the defaults from borrowers and liquidity crisis in the economy compelled the bank to stop the auto loan. Thus in late 2007 and early 2008 car sales dropped significantly as the private banks scaled down their auto finance segments and also the rate of interest was very high on these loans.

But from past few months ICICI Bank has started showing interest in auto loans segment. The change in bank standpoint has come after the increase in the demand in the car market, in the past one year the passenger car sales has grown at 16.2% to 10.52 lakh units between April and October, 2009 over the year-ago period. ICICI Bank spokesperson refused to share any information on the new strategy or reveal any details of loans dispersal when ET reported contacted. An executive related to auto finance industry told in the current fiscal, ICICI Bank has doubled the amount allotted for the auto loan disbursement; it has been increased over Rs 1,500 crore, as against the year ended March 2009.

The auto finance market anticipated to be Rs 40,000 crore a year, in the past few months has gone through major changes. The main reason for decline in market share of private banks is the virtual exit of ICICI Bank from key market and on the other hand government-owned banks adopted aggressive lending strategy, they offered cheaper loans at interest rates less than 10%. According to sources in the banking industry ICICI Bank will remain the largest player in auto finance because of its huge disbursements in the past even though other banks such as SBI, PNB, Canara Bank and Bank of Baroda, in the recent years have overtaken it in terms of new auto loans.