Opportunities with the digitization of vehicle finance in India
“Digitization is the future of Auto sector.”
The Indian auto industry is huge. It contributes 7.5% of the overall Indian GDP and 49% of the manufacturing sector. [1]
With Covid wreaking havoc on auto sales for two years, it is now poised for a big comeback this year. The sales in this festive season are proof of that strong comeback. SIAM data shows car sales increased 91% year-on-year to over 3 lac units in September and two-wheeler sales increased by 12.8% to 17.3 lac units.[2]
But these sales numbers are still leaving out a large section of the population who cannot get easy financing options in auto loans. This is now slowly changing.
Digitization of Customer purchase journey
Restrictions during Covid pushed auto manufacturers and auto dealers to digitize the customer purchase journey. There was also a clear behavioral shift towards digital in the customer purchase journey. Maruti Suzuki saw a rise in web-based inquiries from 3% to 39% in the last three years. [3]
Source: Think with Google
With a shift to digital, customers across all auto segments are preferring a hassle-free vehicle purchase journey.
Leveraging the vehicle finance growth story
Source: Wikimedia
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The surge in auto sales has also impacted vehicle financing volumes. As per RBI data, vehicle advances of commercial banks grew 18% Y-o-Y at the end of June 2022. The growth was seen more for passenger vehicles compared to commercial vehicles. [4]
With digital touchpoints increasing in the customer purchase journey of an automobile, digitization of vehicle financing is inevitable.
Source: Vivriti
There is another huge untapped opportunity in CV loans. Currently, banks and auto OEM NBFCs dominate new CV financing. However, in used CV financing, a large segment is still controlled by the unorganized sector (mainly local moneylenders). The rest is controlled by NBFCs. [5]
With digitization and better risk assessment, the opportunity is ripe for NBFCs and banks to formalize the used CV financing market.
Current issues in vehicle financing
The current process of vehicle financing is painfully slow. Applications are processed physically, many documents require in-person verification, and the turnaround time (TAT) is too long for customers to stick around.
There are also many human errors in application processing and disbursements. There are many cases of fraud and increasing NPAs in auto loans.
The manual process also makes it much more difficult to scale.
Transforming vehicle finance with technology
With state-of-the-art document scanning technology and OCR, all documents can be digitized, verified, and stored. Cloud-based platforms can also help multiple stakeholders to access and act on the loan application in parallel.
Digital loan processing can also help remove multiple rounds of negotiations and tedious paperwork, thereby democratizing the auto lending process. Real-time credit risk assessment of the loan application with data from open APIs and credit score analysis can significantly reduce fraud.
With AI-based lending algorithms, auto loan offers can be personalized for each customer. Useful add-ons can also be offered based on customer tastes and spending preferences. Such steps would increase not only the loan volume but also the quality of loans disbursed.
Lenders who digitized vehicle financing have also noted a significant increase in customer satisfaction levels. You can learn more about how India’s #1 cloud lending platform digitizes vehicle financing here.
Digitize vehicle financing with Lentra
India’s car loan and two-wheeler loan market is expected to grow at a CAGR of 8% and 11% respectively. [6] [7] Car loan market alone would be USD 60 billion by 2026. We are in the middle of a major transformation in the customer journey while purchasing an automobile.
Source: Lentra
Every major bank, NBFC, and other auto loan lending businesses are adopting digital lending practices in their workflow to stay ahead in the game. If you wish to be a part of this revolution, check Lentra’s cloud-based vehicle financing platform.