State Bank of India, one of the biggest public sector banks in India, has decided to stop disbursing vehicle loans to Ola drivers due to rise in the number of defaulters. It is now pushing to recover dues.
Typically, the average ticket size of these loans is ₹4 lakh to ₹5 lakh, with the most common cars being Tata Indica, Toyota Etios or Maruti Suzuki Swift Dzire. In certain cases, defaulting drivers have been untraceable while in others, the drivers kept plying the cars without paying dues to the bank.
The major rationale behind this move is that nearly a fifth of its loan book in Bengaluru is defaulting. Thus, as a precautionary step, it has stopped vehicle loans to drivers plying cars for Ola in the city. This is a big blow for Ola as the southern metropolis is the country’s largest market for ride-hailing apps.
Gopal Krishan Kansal, chief general manager, small and medium enterprise, at State Bank of India in Mumbai, said that the total default amounts to ₹60 crore. He added that while they had stopped disbursing loans in Bengaluru, they still disburse loans to Ola vehicles in Hyderabad and Chennai. The default rate in those two cities is almost 7 percent.
On the other hand, SBI said that it processed approximately 1,300 commercial car loans for Uber across India, excluding Bengaluru and Delhi-NCR, disbursing around ₹35 crore. It added that these accounts reported less than 1 percent of defaults.
Bankers are believing that the loan defaults started after drivers’ incomes fell sharply as Uber and Ola cut down on incentives. The hit has been felt hardest in Chennai, Bengaluru, and Hyderabad, which account for the highest number of driver registrations on the ride-hailing platforms.
In the initial days of Ola and Uber, the companies were giving incentives to drivers, enabling them to easily earn somewhere between ₹70,000 and ₹1 lakh every month. But now, the earnings for drivers has drastically come down to an average of ₹40,000-50,000.
This is mainly because the companies are now trying to reduce the burn rates in order to improve unit economics. Last year, the Association of Radio Taxis said that Ola and Uber were collectively incurring operating cash losses of ₹500-600 crore every month.