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Risk Management in Vehicle Finance

This document discusses risk management in the vehicle finance industry. It identifies key risks in the sales, credit, operations, and collections processes. These include things like improper customer screening, funding overleveraged customers, data entry errors, and increased non-performing assets. It also examines macro risks like volatility in interest rates, changes in government policy, and fierce competition. The document provides suggestions on managing these risks, such as prudent loan approval procedures, maintaining credit ratings and asset quality, and avoiding, reducing, transferring or retaining different risks.

Uploaded by

Abhishek Bose
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
199 views

Risk Management in Vehicle Finance

This document discusses risk management in the vehicle finance industry. It identifies key risks in the sales, credit, operations, and collections processes. These include things like improper customer screening, funding overleveraged customers, data entry errors, and increased non-performing assets. It also examines macro risks like volatility in interest rates, changes in government policy, and fierce competition. The document provides suggestions on managing these risks, such as prudent loan approval procedures, maintaining credit ratings and asset quality, and avoiding, reducing, transferring or retaining different risks.

Uploaded by

Abhishek Bose
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Risk Management in Vehicle

Finance
Objectives

 To understand the different risks associated with the


vehicle finance industry and also the different processes
used to mitigate.
 To understand the different challenges being faced by
the vehicle finance industry and also the different
business drivers which lead to the growth of the industry.
Where does the risks lie?

– Processes
 Sales
 Credit
 Operations
 Collections
Risks Identified

Sales process
Forceful cross sell
Neighbor check not proper
Improper Reference Taken
Lack of knowledge-Business loss
Customer segment not defined properly
Misrepresentation of Customer’s Background
Wrong information conveyed to the customer
Market Related information-company image ruined
Credit Process

 Non detection of intentional defaulters


 Internal & External Dedupe (CIBIL)
 Improper market/other financer’s reference
 Negative profile & areas not identified properly
 Improper Product / Profile Funding
 Improper RCU check
 Funding to over leveraged customers
 PDD not collected in time
 Follow up on Early Default / Non starter cases
Operational risk

 Wrong Entry of Customer Data


 Health Check Not done Properly
 Disbursement not on time & Improper
 Risk of double disbursement at times
 Improper handling of cash & ineffective internal control
Collections

 Increase in NPA
 Legal & regulatory Risk
 Repossession & Resale
 Damage/Theft to Physical Assets
 Early Closure & Settlement
 Follow up not done in time with customers
 Improper control of inventory & Vehicle inspection
Risks @ Macro level

 System delivery/process efficiency


 Volatility in interest rate
 Political risk /Change in Govt. policies
 Customer acquisition /customer Retention
 Market to Market Risk
 Prepayment Risk
 Employee retention & Job Rotation
 Meeting Demand in Stipulated time
 Fierce competition with other players
Key challenges
Project progress…

 Competitive Pricing
 Dealer’s Feedback
 Customer Survey
 Corporate Sales/Strategic Sales
 Other Experiences
What lies ahead…

 Economic growth, industrial growth and infrastructure


development expected to boost the commercial vehicle
Market
 Oil prices -$90 /bbl, future ???
 Liquidity & Interest rate movements
 Pressure on Input Costs
Key business drivers

 Value added products Non-interest income


 Documentation/administration fees
 Interest received
 Dealer incentives
 Interest margins
 Driver Impact
Suggestions

 Client Base
 Immense potential in the rural and semi urban markets
 Early entry and knowledge of the rural and semi urban
market
 Extensive Branch Network / Dealer Relationships
 Consistent financial performance
 Prudent loan approval and administration procedures
 Funds at competitive rates Maintaining Credit Rating &
Asset Quality
Key Actions

 Optimize and extend partnerships


 Deepen Chola DBS product and solutions & penetration
in the rest of the chola DBS customer base
 Extend Chola DBS participation in the movable asset
finance and management value chain
 Further enhance asset diversification
 Over time, enter selected profitable markets where
Chola DBS has a presence
Potential risk treatments

 Avoidance (eliminate)
 Reduction (mitigate)
 Transference (outsource or insure)
 Retention (accept and budget)
 Re-ageing Borrowers Account
Limitations

 Prioritizing too highly the Risk Management Processes


 Impacts x Probability
 Cost Underestimation
LEARNINGS
 Lines of credit make sense when system has credit
analysis capacity
 Target subsidy element in clear, limited, and in stable
fashion makes room for market growth
 Test for ‘Excess Demand’ that can be satisfied at Market
Rates
 Blend competitively obtained Market Capital with suitable
offers
THANK YOU

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