Banks pull back car loans to Ola, Uber taxi drivers on falling income

A fall in incomes of taxi drivers of Ola and Uber, courtesy lack of incentives, have prompted banks to increase scrutiny on car loan disbursements


Driver incomes are falling because both Ola and Uber had cut down on driver incentives, prompting taxi driver strikes in Delhi and Bengaluru earlier this year. Photo: Pradeep Gaur/Mint
Driver incomes are falling because both Ola and Uber had cut down on driver incentives, prompting taxi driver strikes in Delhi and Bengaluru earlier this year. Photo: Pradeep Gaur/Mint

Mumbai/Bengaluru: A fall in incomes of taxi drivers who work with cab aggregators Ola (ANI Technologies Pvt. Ltd) and Uber (Uber Technologies Inc.) have prompted some of India’s top banks to pull back on car loans to them and tweak underwriting norms.

In some cities, banks had stopped lending to Uber and Ola drivers as early as a year ago.

“We stopped giving car loans to drivers in Bengaluru last year. However, we remain invested in this segment of loans,” said Rajnish Kumar, managing director at State Bank of India, one of the largest disbursers of car loans.

“We continue to disburse loans in Hyderabad and Chennai after tweaking the underwriting standards,” added Kumar without revealing details of what SBI was doing to protect its loans.

SBI has advanced around Rs120 crore to drivers of these ride-hailing companies.

Tata Motors Finance Ltd, which has funded around 2,000 Ola and Uber vehicles, has also tightened its credit norms, said its managing director Shyam Mani. “Till March, Uber was covering up for losses beyond a certain level for these drivers. Since then, they have stopped this practice,” said Mani.

Now that this safety net is no longer there, firms are scrutinizing profiles of the drivers, the number of years of experience and their ability to pay back loans more closely, even as the rate of interest has not changed.

The Economic Times first reported this on Tuesday.

An executive at one of India’s largest private sector banks said while the bank hasn’t stopped lending, the growth rate in disbursing fresh car loans to Uber and Ola drivers has come down.

“We have a very strong on-going partnership with several banks like the State Bank of India, Bank of Baroda and many auto-focussed NBFCs to offer vehicle financing for partner drivers across India. These partnerships have allowed many who may otherwise never have access to funding, to own their own vehicles boosting grassroots entrepreneurship,” Uber said in an emailed statement.

Ola declined to comment.

According to multiple company and industry executives, while there have been defaults in repayment among Ola drivers because of lower incomes.

The firm has also partnered with car makers such as Mahindra and Mahindra Ltd to finance vehicles for more than 40,000 of its drivers by 2018. The alliance between Mahindra and Ola is worth Rs2,600 crore.

Driver incomes are falling because both Ola and Uber had cut down on incentives, a major area of cash burn for the companies apart from subsidising fares, after luring large numbers of drivers with lucrative payments over and above the fare in the initial years of operations.

The idea was to list as many drivers on their platforms as possible and shore up supply. However, spends on incentives dropped as the businesses tried to reduce cash burn and increase profitability amid a slowdown in funding. Ola is estimated to have about 550,000-600,000 drivers compared with Uber’s about 400,000.

The drop in incentives led to driver protests, especially in Bengaluru and Delhi, two of the cab aggregators’ biggest markets in India.

While the asset-light model of cab-hailing services has merit, strikes by taxi drivers over falling incentives (their key attraction for listing on such platforms) mean that these businesses cannot afford to rub the dissenters—car and fleet owners—the wrong way, Mint reported on 6 March.

To be sure, both Ola and Uber have set up car-leasing businesses—Ola Fleet Technologies Pvt. Ltd and Xchange Leasing India Pvt. Ltd—over the past 18 months to ensure a supply of cars over which they have strict control.

Ola announced the appointment of former SAB Miller India executive Salabh Seth as the chief executive of its leasing subsidiary in January, signalling its intent to scale up the vertical.

The leasing schemes address major pain points for ride-hailing services: they enable them to lock in a driver on their platforms for the duration of the lease—anything between three and four years—as well reduce spending on driver incentives and ensure a steady supply of cars.

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