Auto loan rejection rates go up, turnaround time doubles as financiers exercise caution

Even if the moratorium was not taken due to inability to pay, financiers are apprehensive in signing off on new debt. Customers with lower credit scores are also facing similar challenges.

"The levels of risk acceptance by banks have come down and banks being careful of who they'll lend to", PB Balaji, Group CFO, Tata Motors said.

RC Bhargava, Chairman of Maruti Suzuki, also highlighted that obtaining finance is still a challenge for buyers.

According to a leading mass market dealership, rejection rates were up to 15 percent of the applications made, from 8 percent earlier. For luxury buyers, rejection rates had gone up to 22 percent from 9 percent during pre-Covid period.

Additionally, auto dealer sources say there is increased scrutiny for large-ticket loans, and a lot of additional documentation is being requested for loan approvals. The underwriting process for these loans appears to have changed completely, they add.

The challenge is especially pronounced for customers working in

non-government, non-essential services sectors, where risk is perceived to be greater. While customers with moratoriums on existing loans are more likely to have their applications rejected, rejections have significantly increased for customers in the small and medium enterprises sector as well.

Financiers, however, maintain that while turnaround times have indeed gone up, the challenges are operational and don't reflect an intention to not lend.

"Completing paperwork has become challenging as branches are facing logistical difficulties", a leading lender in the auto space told CNBC-TV18.

"100% digital financing is not possible as the process requires some or the other physical element - that adds to delays,"

Bankers confirmed to CNBC-TV18 that turnaround times for loan disbursals have now almost doubled, as processes which would take 24 hours are now taking at least 48 hours, if not more.

In fact, lenders say new application quality for loans is currently good in itself, as a new segment of buyers comes into the entry level market. New loan applications for individual buyers, therefore, are being processed smoothly. Penetration of finance, too, therefore, has not declined.

Commercial fleet operators struggle with obtaining finance However, it is financing for commercial vehicles that has slowed down the most.

Commercial fleet operators for both taxis and trucks, as well as first-time driver/owner profiles have been hit badly due to the Covid-19 pandemic, and banks are exercising restraint in lending to these customers in the absence of signs of recovery.

"Fleet sales have been impacted, in commercial vehicles there's a challenge in availability of financing", Balaji said.

Vinod Aggarwal, MD and CEO of VECV, also said that banks are reluctant to finance new orders as there are no signs of new demand and business activity continues to be low. Financing, especially for smaller fleet operators, who have opted for moratoriums is difficult to obtain.

As truck operators do not have fixed incomes and demands in cargo/haulage continue to be affected because of low economic activity and prolonged lockdowns, banks are staying away fearing these loans may turn potential NPAs.

However, automakers highlight that it is PSU banks who are currently filling the gap left in financing by private banks.

"We are seeing PSUs coming in PV financing pretty strong. Where there are delays by private banks, it is being made up for by PSU banks", Tata Motors' Balaji added.