Banks Eye Expansion In Pre Owned Vehicle Portfolios

Banks are aiming to enhance their market presence in the used-vehicle category to boost profits. They are capitalising on their access to cost effective funds and extensive branch networks to penetrate both the used car and used commercial vehicle sectors, where Non Banking Financial Companies (NBFCs) have traditionally dominated. Axis Bank, HDFC Bank, ICICI Bank and YES Bank have collaborated with platforms like Rupyy to offer loans for used vehicles.

According to data from CareEdge Ratings, banks currently hold approximately 40 per cent of the market share in the used commercial vehicle segment, with NBFCs and captive financiers holding the rest. However, industry experts suggest that banks' market share in this segment may be even lower. Overall, banks command about 56.5 per cent of the vehicle loan market, while NBFCs hold a 43.5 per cent share. As the demand for pre-owned vehicles grows, banks are increasingly focusing on this segment.

Historically, concerns about asset valuation and title transfers have deterred investment in the used vehicle segment. However, the market for pre owned vehicles has matured, with certified pre owned car dealerships and online platforms emerging as organised players. Even original equipment manufacturers (OEMs) have entered the pre owned car market, selling certified vehicles of various brands.

With the surge in demand, banks are seizing the opportunity to earn higher yields, particularly amidst challenges posed by high funding costs. Additionally, the loan to value ratio for used vehicles tends to be lower than for new vehicles, enabling banks to manage credit losses more effectively.

From a customer standpoint, banks offer competitive interest rates compared to NBFCs due to their access to low-cost deposits and extensive branch networks. Moreover, banks' robust infrastructure facilitates a smoother onboarding process and offers a wider range of products beyond vehicle financing.

While banks face challenges in gaining significant market share in the used vehicle segment, their success will hinge on their ability to source business effectively. Establishing a strong network of dealers and deal originators will be crucial for banks to compete with NBFCs in this space.