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M. Ramesh

Chennai , March 9

FINANCIERS appear to have woken up to the opportunities in used-car loans.

Until last year, lending for `second-hand' car purchases was seen as risky. Question was whether a used-car buyer — presumably of a lower-income bracket — will repay his loan? But now there is empirical evidence to show that this perception is changing.

Take for example the case of ICICI Bank. Its disbursements for used-car purchases were Rs 700 crore in 2003-04, a figure the bank reached in nine months this year. Used-car loan disbursements this year will cross Rs 1,200 crore. Compare this with the bank's new car loans — Rs 7,000 crore in 2003-04 and Rs 10,500 crore this year — you will see that used-car loan growth has been faster.

Same with Sundaram Finance, though on a much lower scale. The company's used-car loans will touch Rs 70 crore this year against Rs 33 crore in 2003-04. Last year, about 2,200 cars were bought with Sundaram Finance's funding; the number increased to 4,500.

"The industry is getting more organised. It is no longer perceived as shady," says Mr T.T. Srinivasa Raghavan, Managing Director, Sundaram Finance.

Sensing the potential of this segment, Cholamandalam Investment and Finance Company Ltd has decided to pay special attention to it. "We are tying up with second-hand car dealers," says Mr M. Anandan, Managing Director. The company has already tasted success — disbursements this year are expected to be Rs 40 crore, four times as much as last year.

Such growth rates appear to be universal. Another example is that of Ashok Leyland Finance, a division of IndusInd Bank. Last year, its disbursements were Rs 9 crore for 663 vehicles; this year up to February, it did Rs 34 crore for 2,300 vehicles.

Mr K. Mahalingam, Partner, T.S. Mahalingam and Sons (a firm that has been in the used-car sales business for half a century), says that the proportion of cars bought on loans in the overall sales had gone up to about 35 per cent against 20 per cent last year. The firm expects to end the year with sales of 3,250 cars.

The lure is the comfortable spreads, says everybody in the business, though none wants to give any numbers. On the one hand, spreads are good, while on the other the risk has been coming down.

"The profile of customers has been improving and with a better registration process and smart card registration in most States to be launched, this should improve," comments Mr Sachin Khandelwal, who heads the vehicle finance division in ICICI Bank.

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