Ashok Leyland Finance Ltd ventures into consumer loans

Venkatachari Jagannathan
05 September 2000

Financing consumer durables is the in thing amongst lenders these days. The latest to enter this segment is the Chennai-based truck finance major Ashok Leyland Finance Ltd. The reasons? The car finance segment has become very competitive and is nearly monopolised by foreign banks. On the other hand, demand for commercial vehicles is playing a seesaw game. On the big ticket lending - corporate side - several accounts are getting sticky.

Given this situation, financial institutions have to look at other avenues for parking their funds. And the one area of profitable credit deployment is financing of consumer durables purchases. It should be noted that the housing finance industry is doing well. Now a new house means at least one or two new consumer durables purchases. However, there are low spreads in retail lending.

"The future growth of any finance company hinges upon process efficiencies and the ability to carry on profitable operations by handling volumes in a low margin regime," reasons Mr S Nagarajan, managing director of ALFL.

Ashok Leyland Finance is holding parleys with consumer goods dealers and retailers for pushing its financing product. "In this business, consumer goods dealers are the fulcrum," says Mr Nagarajan. According to him, the company will not be appointing any direct selling agents for selling its consumer durables loans. "We will leverage our 140 branch offices spread nationwide, and our proposed portal for the purpose." On the other hand, the company will engage chartered accountant firms for appraising the loan proposals.

"We plan to disburse around Rs 100 crore this fiscal and gradually ramp up the volumes to Rs 300 crore in three years' time," Mr SV Parthasarathy, vice president - operations, says. The company will be matching competition on zero per cent interest plans that are offered by bigger players like ICICI. ALFL is talking to some consumer durables manufacturers for the purpose.

"But what most of the non-banking finance companies including us can't match big player competition like ICICI, GE Capital on, is the cheap cost of finance available to them," says Mr Nagarajan. According to him, in retail financing the spread will have to be not less than five per cent for a financier to be viable. "The cost of managing a retail loan is around two per cent, and other risks like interest rate fluctuations are also to be factored in."