Covid-19 Impact: As Loans Sour, Many Cab Drivers Left With Nowhere To Turn
Cab drivers have been among the hardest hit by the Covid crisis. People are staying home, there is little daily office traffic, fewer leisure trips. Those who can afford it, are opting for the safety of private vehicles.
All this has meant a sharp fall in earnings for cab drivers for the second year running, prompting many, who once drove as part of the Uber and Ola networks, to default on loans taken to buy vehicles.
The segment, while small in terms of quantum of loans, had drawn lenders who structured repayments in a way that a part of regular cab fare was routed directly to repay dues. Now, with earnings dropping to near nothing, loans have soured and many drivers have seen vehicles seized by lenders.
“Last year itself, the NPAs in the cab driver segment had touched 19% of total advances. Now they have gone up even more, to over 20%,” said Saloni Narayan, deputy managing director for retail business at State Bank of India Ltd. The bank has about Rs 100 crore in loans to this segment.
The experience of Mahindra & Mahindra Financial Services Ltd. is similar. Of the 80,000 cab-drivers the lender caters to, nearly half have not been paying their equated monthly installments on time, said Ramesh Iyer, vice-chairman and managing director at the non-bank lender.
During the first wave, a lot of these (cab drivers) customers got the loan moratorium relief that helped delay their repayments, and collections eventually improved starting September. But since mid-April this year, collections have again fallen drastically—lower than what we saw during the first wave, as the segment struggled with close to zero income levels between April and June.Ramesh Iyer, Vice-Chairman & Managing Director, Mahindra Finance
Iyer did not disclose the exact level of bad loans in this segment.
No industry-wide data exists on either outstanding loans to this segment or the extent of bad loans but analysts say the performance will be similar across lenders.
The cab driver segment, according to Jignesh Shial, research analyst at Emkay Global, is largely serviced by public-sector banks and vehicle-focused non-bank lenders. Based on his estimates, non-performing assets within the segment may have touched 15-17% for most lenders.
"Over the next 2-3 quarters, the situation is likely to get worse as slippages may touch 30-35%. A large amount of these loans may get written off as business is likely to remain slow for cab drivers," Shial said.
Limited Options For Support
When a nationwide lockdown was announced last year, the Reserve Bank of India allowed lenders to offer a six-month loan moratorium. This time that option doesn't exist.
“This time around, there has been no moratorium relief and those with dues pending over 90-days are also not eligible for loan restructuring," said Jinay Gala, senior analyst at India Ratings and Research.
While restructuring of retail and small business loans has been reopened, the rules don't allow for restructuring of loans which were already in default as of March 31, 2020.
Most of these relief measures cannot be offered to cab drivers as “not many” loan accounts in the segment were standard as of March 31, and therefore, not eligible for restructuring, said SBI's Narayan.
The second wave has been even more dangerous and people have lost their lives and family members. Then, there were localised lockdowns. All these things put together have really hit the cab driver segment very hard.Saloni Narayan, Deputy MD - Retail, SBI
From Lost Income To Lost Source Of Livelihood
With defaults high and income picking up only slowly, some lenders are resorting to tough recovery measures, claim associations who work with cab drivers.
Shaik Salauddin, national general secretary at Indian Federation of App-Based Transport Workers that claims to have more than 20,000 cab drivers as members, said lenders have reclaimed vehicles in large numbers.
In the last six-seven months, more than 6,000 vehicles in India have been impounded by financiers over non-repayment of dues, he said. Salauddin added that business is still close to zero and with mounting debt, the situation is dire for cab drivers. A lot of them have already lost their vehicles to lenders in the process of recovery, others are pawning gold and selling household goods to repay their loan dues, he said.
BloombergQuint could not independent verify these numbers.
Both Narayan and Iyer said that lenders are trying to be patient.
"It could take another month or so before collections see any improvement in the cab driver segment. But we are trying to do our best to give borrowers more time to repay, and no vehicles have been repossessed from our end,” said Iyer.
SBI's Narayan also said the lender is giving its cab driver borrowers more time to repay, and not resorting to auctioning vehicles yet. "Amid all this, SBI that way has been very lenient. SBI won’t like to give a message that when people are in so much distress, we are going out and auctioning their vehicles. We will wait," she said.
According to Gala, however, repossession of vehicles may be inevitable as there are limited recovery options otherwise.
Cab aggregators have not helped much either, said Salauddin.
In a written reply to BloombergQuint's query, however, an Uber spokesperson said the company, in April this year, gave cash incentives worth Rs 18.5 crore to its drivers for the time they spent in getting vaccination shots, apart from free online medical consultations and partial earnings support for those suffering from Covid.
Uber, however, did not respond to queries related to the extent of reduction in its fleet capacity, or the number of their cab drivers who had taken loans to purchase their cars and had seen their vehicles repossessed.
Ola did not respond to any of BloombergQuint's queries.
An Idea Gone Wrong
When mobile app-based cab aggregators entered the market in 2010, a number of lenders saw the segment as a new business opportunity. Tie-ups were announced to provide loans to drivers to purchase vehicles, with lenders relying on cab aggregators for data, KYC requirements and routing of repayments.
The idea wasn't working smoothly even before the Covid crisis hit.
In 2016-17, many lenders reduced their exposure to the segment as cab aggregator platforms began slashing incentives of their partner drivers in a bid to turn profitable. “Even then, many cab drivers went on regular strikes, remained off the-road for several days, all of which affected their income and their ability to repay loans. So, lenders began cutting their exposure to the cab-driver segment,” said Shial.
SBI, for example, saw NPAs in the segment touch 20% even in 2016, after which the lender began reducing its exposure to cab drivers and cab-aggregator platforms, said Narayan. But there were other factors that also led to this decision.
One, was that the business model of cab aggregator platforms pivoted from transferring ride payments to digital wallets of drivers to a more cash-based payment model. As payments stopped coming directly to drivers’ accounts, it became difficult to deduct EMIs as they would often not maintain the required account balance.
“Eventually what happened was that drivers stopped paying and they would also leave the cab aggregator platform, so the exclusivity also went away. So, if a driver of Ola would also be a driver of Uber, all that was to the disadvantage of the bank, because it became difficult for us to track them,” she said.
Finally, after SBI discontinued its tie-ups with cab-aggregator platforms last year, the move also put an end to shared leases and the initial KYC checks the platforms did before the drivers applied for a loan.
“Earlier, Ola would share the lease. It used to tell us which cars and their drivers were to be financed. But once this tie-up was discontinued, we stopped taking any references from them,” said Narayan.
The past lending experience in this segment, coupled with recent defaults, may make it tougher for those looking to get credit to purchase cabs.
“We believe lenders would take a cautious stance on this segment and will avoid any incremental exposure at least in medium term till the situation settles down. The focus would be on existing loans and their recovery,” said Gala.