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Cracking the whip

August 20, 2008

Rising inflation and interest rates have now started to hurt banks as well as borrowers in more ways than one. The country’s largest private sector bank, ICICI Bank, has now declared that it will stop financing two-wheeler loans through the dealer network.

“We are now shifting our twowheeler business to our branches. This will save costs and provide better risk management.” says V. Vaidyanathan, Executive Director, ICICI Bank. There are reports that the non-performing assets (NPAs) are mounting in this segment. The bank is the largest financier of two-wheelers in the country.

ICICI’s Kamath: Cutting out dealers
ICICI’s Kamath: Cutting out dealers
Analysts point out that NPAs have risen in this category over the past few years. According to Care Research, an independent rating agency, the gross NPAs on two-wheeler loans is expected to go up to 10.50 per cent this fiscal, up from 6 per cent in March 2007.Says Tarun Bhatia, Head, Financial Sector Ratings, CRISIL: “The repaying capacity of the borrower tends to go down in a rising inflation scenario.” Bhatia says gross NPAs on two-wheeler loans will have gone up from 5 per cent in 2006 to 7-8 per cent this year.

Two-wheeler dealers contacted by Business Today denied that the ICICI Bank decision would adversely impact their business. “There is no dearth of financial options. We are in talks with new financing companies such as Fullerton Money and Shriram Finance,” says a dealer in Mumbai.

Analysts, though, don’t rule out the possibility of other banks taking a cue from ICICI Bank and setting stringent norms for disbursing small-ticket loans. For customers, it’s increasingly clear that the days of easy credit are over.

Rachna Monga

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