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Need Analysis OF Auto Loan Customers: Summer Project Report On
Need Analysis OF Auto Loan Customers: Summer Project Report On
On
N E E D A N A LY S I S
OF
AUTO LOAN CUSTOMERS
Submitted To:
ICICI Bank
Submitted By:
Pratul Lobo
MMS – Marketing
Acknowledgement
1
I would like to express my sincere thanks to ICICI Bank for providing me the requisite
material to complete my project.
I would also like to take this opportunity to express my deep and sincere gratitude to Mr.
Srikanth Mahadevan, National Sales Manager (Vehicle Loans), ICICI Bank Ltd. for
his valuable insight and encouragement in implementing this project. It is because of his
support that I could synchronize the efforts in converting the manifold features of the
project.
I am really thankful to all the respondents who helped me gain the required information
and spared their precious time in order to make the research project a success.
I also would like to acknowledge the infrastructure support provided by my Director Prof.
P.L. Arya and the support of my colleagues.
Pratul C Lobo
MMS (Marketing) 2008-10
LETTER OF TRANSMITTAL
2
Mr. Srikanth Mahadevan
National Sales Manager (Vehicle Loans)
ICICI Bank Ltd.
Respected Sir,
As per your directions, I have completed my research on “Need Analysis of Auto loan
Customers”. The report is based on interviews and responses of respondents from
Mumbai. The project was carried from 4 th May 2009 to 30th June 2009.The complete
methodology and conclusions derived on the basis of the responses is described in the
report. I believe you will find the results mentioned in the report to be interesting and
certainly useful.
Table of Content
3
S. No Topic Page No.
1. Introduction
2. Executive Summary 6
3. Methodology
a. Problem Statement and Objectives 10
b. Sampling Strategy 13
1. Summary of findings 15
2. Recommendations & Conclusions 39
5. Appendices
1. Questionnaire 44
2. Bibliography 48
ICICI Bank
4
Overview:
ICICI Bank is India's second-largest bank with total assets of Rs. 3,793.01 billion (US$
75 billion) at March 31, 2009 and profit after tax Rs. 37.58 billion for the year ended
March 31, 2009. The Bank has a network of 1,451 branches and about 4,721 ATMs in
India and presence in 18 countries. ICICI Bank offers a wide range of banking products
and financial services to corporate and retail customers through a variety of delivery
channels and through its specialized subsidiaries and affiliates in the areas of
investment banking, life and non-life insurance, venture capital and asset management.
The Bank currently has subsidiaries in the United Kingdom, Russia and Canada,
branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai
International Finance Centre and representative offices in United Arab Emirates, China,
South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has
established branches in Belgium and Germany.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the
National Stock Exchange of India Limited and its American Depositary Receipts (ADRs)
are listed on the New York Stock Exchange (NYSE).
Vision:
“To become the leading player in Indian financial markets and grow our overseas
presence.”
Executive Summary
5
Gone are the days when people would dip into their cash reserves and savings to buy
cars. Almost all – both individuals and companies – prefer to buy vehicles on
installments, because that allows them the liberty of not having to invest a huge amount
upfront. That’s the need gap being filled by almost all banks and financial institutions,
who now offer auto loans on lucrative terms to consumers, egging them to fulfill their
dreams and aspirations, just by paying some extra interest. According to industry
estimates, in the last few years alone, 60% of cars were bought through finance deals.
Two-wheelers, being cheaper, had a smaller share in the auto loans market.
With more and more attractive car and two wheeler brands and models jostling for the
consumer’s attention, banks and financial institutions, are also falling over each other to
offer the most customer-friendly loan schemes, which can suit even the most humble
earnings. That’s what creates an embarrassment of riches – a confusion over which
bank to choose and which loan to opt for.
Based on certain conditions, banks in India are more than willing to extend a car loan to
finance the major share of the car's cost.
Certain terms of services offered by Banks are explained as follows:
A secured loan
Beginning with the basics, a car loan by nature is a secured loan. The vehicle or car you
are buying will be the collateral or security for your loan. Until you complete the loan
repayments, your lender will have complete authority over the purchased car.
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Some banks provide car loans at On Road Prices. This means that the loan amount
sanctioned for your cars will contain the ex-showroom price of the car plus the
insurance, the road tax and any other amount that is required. The car loan amount in
case of On Road Price will be significantly greater than the Ex-showroom price of the
car. Let us take an example.
A fixed interest rate loan is a loan where the interest rate doesn't fluctuate during the
fixed rate period of the loan. This allows the borrower to accurately predict their future
payments.
Loan to value, a ratio of the outstanding debt on a property to the market value of that
property
Structured home loans are products which are mapped to specific individual needs as
against a vanilla product offered to the customers at large. These are dependent on
factors like the profile of the customer, his need, type of properties etc.
This is the most common type of repayment structure where you pay regular
even amounts, subject to interest rate changes. Your early repayments are
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mostly interest with a small amount of principal. As you pay off your loan, this
ratio gradually reverses.
8
Login, with all required documents.
Residence verification, Office verification and Tele- verification at residence & office.
Normally done by external agencies.
CAM (credit approval memo) report.
Industry credit match with other banks and finance institutions for credit history.
Final credit approval and amount of loan eligibility are determined at this point.
Submission of signed agreement, post dated cheques along with other necessary
documents.
Pre-disbursal check at operations.
Pre-disbursal call to the customer for confirming the EMI and interest rate as
documented by the customer.
Disbursement.
Release of payment and vehicle release order to the specified authorized dealer.
Letter of communication send to the customer with all details for future reference.
Methodology
PROBLEM STATEMENT:
To carry out a need analysis of auto loan customers and develop appropriate
products/schemes to fulfill these needs.
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RESEARCH OBJECTIVES:
1. To ascertain the perceptions of customers regarding auto loan financing provided
by financial institutions.
2. To assess the auto loan requirements of car owners and prospective car owners
and
3. To develop appropriate products/schemes to fulfill these needs.
RESEARCH DESIGN:
The research group used the exploratory and descriptive design.
Secondary Research:
Collection of data from websites and catalogues to understand the loan products and
charges of auto loans offered by different Banks.
10
A survey was conducted of 107 respondents. The sample was selected on a simple
random probability basis within the region of Mumbai.
The interviews were conducted and data was collected accordingly. Standard editing
and coding procedures were utilized to ensure maximum accuracy and un-ambiguity.
This includes careful interpretation and good judgment of the data. Simple tabulation
was utilized to analyze data.
Specific Questions/Scale
Question/Scale Measurement
Measurements format is
were evaluated.
Step 4
developed.
Step 5 Research
The objectives
information were transformed
objectives needed wereinto
Step 6 information objectives.
determined.
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Step 7 The questionnaire and layout was evaluated.
Limitations of Study:
Time availability was one of limiting factor due to which we will have to limit our sample
size.
Limited choice of application based software.
Limited expertise in analysis of data through use of application based software.
Limited access to secondary data.
Bibliography: A list of books, websites, journals and newspapers that was referred is
provided
SAMPLING STRATEGY
1. Target Population
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The Population consists of all customers desirous of financing their car purchase
through loans provided by banks.
2. Sample frame
The Sample frame consists of all customers visiting various car dealerships.
3. Sampling Method
Probability sampling is used as the sampling frame is available, population is
homogeneous and population details are available.
4. Sampling Procedure
Simple random sampling
The population has different categories like people belonging to different age groups,
different income levels each have different perceptions of a loan product depending
upon their need. So we are using simple random sampling.
Dealership Brand
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Concorde Motors (India) Limited (CMIL), Tata Motors
Prabhadevi
Spectra Motors Ltd, Goregaon Maruti
Summary of Findings
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Price Range 1-5 lakhs 10-15 lakhs 5-10 lakhs
Survey Size 65 5 37
Interpretation
The sample size indicates a larger proportion (61%) of customers visiting auto
dealerships around Mumbai had a preference for cars within the price range of Rs. 1-5
lakhs (Small Car segment).
The Mid Car Segment (34%) was preferred by customers at a price range of Rs. 5-10
lakhs.
A small percentage of the sample size (5%) preferred the luxury car segment for cars
price above Rs. 10 lakhs.
As part of the questionnaire, the respondents were asked to choose between 3 different
banks i.e. Bank A, Bank B and Bank C offering auto loans with differing terms of
services.
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Loan to Value (LTV) deal (%) 90-100% 85% 80%
*(On-Road Price)
Loan Tenor 7 6 5
(Maximum No. Of Years)
Down Payment (%) *(On-Road Price) 0-10% 15% 20%
Prepayment charges 5% 3% 2%
*(On % of Principal Amount prepaid) *(full repayment only)
Results
Interpretation:
About 57% of respondents preferred Bank B which offered a competitive rate of interest
across industry but offered more favourable terms of services compared to Bank C
which offered a lower Rate of Interest.
29 % of customers preferred Bank C offering the lowest interest rate among the 3 banks
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14% of respondents preferred Bank A which offered a higher rate of interest compared
to Bank B and C, but offered far more favourable terms of services.
The Small Car segment consists of cars within the price range of Rs. 1-5 lakhs. The
total number of respondents in this segment was 65.
A)
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Interpretation:
B)
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Interpretation:
55% of customer preferred a loan tenor of 5 years while only 1% of the respondents in
the small car segment preferred a loan tenor of more than 5 years. 25 % of customers
had a preference for 3 years.
The data indicates that customers do not wish to prolong their loan tenor beyond a
reasonable period of time and generally prefer 5 years as a safe and affordable period
for a loan tenor.
C)
Interpretation:
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A majority of respondents (58%) preferred a Loan to Value Deal in the range of 80-90%
while preferences across other categories were minimal.
D)
Interpretation:
71% of respondents said ‘Yes’ to structured EMI payment methods which was suited to
their needs
Structured EMI payment preference was highly preferred among the younger group of
respondents. The preference for structured payments decreases gradually among the
older group of respondents.
E)
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Interpretation:
Age Group
18-30 years: 60% respondents preferred the Step Down payment method while 28%
preferred the Bullet payment method.
31-40 years: 82% respondents preferred the Step Down payment method.
41-50 years: 88% preferred the Step Down payment method.
51-60 years: 50% preferred the Bullet payment and Balloon payment each.
The data indicates that the Step Down mode of payment (67%) was preferred across all
categories while the Bullet Mode of payment (22%) was the second most preferred
choice.
F)
21
Interpretation: Respondents were offered three choices of banks A, B or C which
offered customers different terms of services.
Of the 65 respondents surveyed in the Small Car Segment, 58% preferred Bank B, 28%
Bank C and 14 % preferred Bank A.
Age Group:
18-30 years: 60% of respondents preferred Bank B, 21% preferred Bank C and 19%
preferred Bank A
31-40 years: 69% preferred Bank B and 31% preferred Bank C
41-50 years: 46% chose Bank B, 38% chose Bank C and 16% chose Bank A
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51years and above: 50% had preferred Bank B and C each.
Interpretation: Among all respondents, 83% ranked Rate of Interest as the most
important factor in selecting an auto loan
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Interpretation: 48% of respondents selected Down Payment as the second most
important factor while 23% selected Prepayment charges.
Interpretation: 35% of respondents preferred the loan tenor as the third most important
factor while 25% selected Down payment and 17% loan disbursement.
Interpretation: 32% ranked Loan disbursement as the fourth most important factor
while prepayment charges, down payment and loan tenor were also given significant
importance among respondents.
Overall analysis:
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The majority of respondents ranked Rate of Interest (83%) as the most important
determining factor in selecting an auto loan.
A low down payment was the second most preferred choice.
Prepayment charges, loan tenor and loan disbursement were the other important
factors identified by respondents as important in selecting an auto loan.
After the initial two rankings, responses were varied among customers so the third
and fourth important factors were not as conclusive as the first two important factors.
Mid-Car Segment
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The Mid-Car Segment consists of vehicles in the price range of Rs. 5-10 lakhs.
A)
Interpretation:
Age Group
18-30 years: 81% preferred a fixed rate of interest
31-40 years: 85% preferred a fixed rate of interest
41-50 years: 83% preferred a fixed rate of interest
51years & above: 100% preferred a fixed rate of interest
Overall, 84% preferred a fixed rate of interest while 16% preferred a floating rate of
interest. Thus, in the mid-car segment, it is seen that respondents preferred a stable
interest rate.
B)
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Interpretation: About 65% of respondents preferred a loan tenor of 5 years while the
preference for more than 5 years was only 5%.
As seen in the small car segment, it is seen here as well that customers prefer a 5 year
loan period.
C)
Interpretation: About 65%of customers preferred a loan to value (LTV) deal of 80-90%
while 16% customers preferred an LTV deal of 90-100%. Compared to the small car
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segment, a higher percentage of customers (16%) prefer an LTV deal of about 90-100%
category.
D)
Interpretation: About 68% (25 out of 37) of respondents had a favourable opinion of
Structured EMI payment methods.
Across the age groups of 18-50 years, about 70% of respondents preferred structured
EMI payment facilities which suited their need while 50% of respondents preferred
structured payments in the age group of 51 years and above.
E)
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Interpretation:
44% of respondents (11 of 25) preferred the Bullet mode of payment while 36% of
respondents (9 of 25) preferred the Step Down mode of payment
Age Group:
18-30 years: 36% of respondents preferred the Step Down and Bullet mode of
payment each.
31-40 years: 56% of respondents preferred the Bullet mode of payment while 33%
preferred the Step Down mode of payment
41-50 years: 50% preferred Step Down while 33% preferred Bullet and Step Up
mode of payment each
51 years and above: The lone respondent preferred the Bullet mode of payment.
F)
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Interpretation: The three different Banks A, B and C offered differing terms of services
with regards to the Auto Loan.
As seen in the small car segment, similarly, 54 % preferred Bank B, 32% preferred Bank
C while 14% preferred Bank A.
Age Group:
18-30 years: 69% preferred Bank B and 25 % preferred Bank C
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31-40 years: 46% chose Bank B, 31% preferred Bank C and 23% preferred Bank A
41-50 years: 50% preferred Bank C, 33% preferred Bank B and only 17% chose
Bank A
51 years and above: 50 % chose Bank B and C each.
G)
Interpretation: A majority (78%) ranked Rate of Interest as the most important factor in
selecting an auto loan.
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Interpretation: 38% chose Down payment as the second most important factor and
24% chose Prepayment charges.
Interpretation: 35% chose Down Payment while 24%chose loan tenor and 19% chose
loan disbursement as the third most important factor
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Interpretation: 30% chose Prepayment charges, 24 % chose loan disbursement and
16% chose Loan tenor as the fourth important factor.
Overall Analysis:
78% chose Rate of Interest as the most important factor
38% chose Down Payment as the second important factor
Prepayment charges, loan disbursement and loan tenor were the other important
factors seen by respondents as important in selecting an auto loan.
Luxury Segment
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The Luxury segment consists of cars priced above Rs. 10 lakhs. The total number of
respondents was only 5.
A)
B)
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C)
Interpretation: 60% customers preferred an LTV deal of 90-100% while 40% preferred
an LTV deal of 80-90%
D)
35
Bullet Payment – 100% (2 out of 2 customers preferred the bullet mode of payment)
F)
Interpretation: 60% of respondents preferred Bank B while 20% preferred Bank A and
C each.
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Rank 1: 80% (4out of 5) of respondents ranked Rate of Interest as the most
important factor.
Rank 2: 40% preferred the no Ceiling on Loan Amount (2 out of 5)
Rank 3: Loan Tenor (40%) and Loan to Value Deal % (40%)
Rank4: Down Payment (40%) and Loan Disbursement (40%)
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Interpretations: Of the Total Sample Size of 107, the following interpretations were
obtained:
Insurance on Loan Cover was the most preferred option among all respondents
(78%).
Discount on Vehicle Insurance was the second preference among respondents
(59%).
Margin Money as Fixed Deposit was the third preference among respondents
(22%).
The other cross selling features was not popular among the respondents.
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As observed from the summary of findings, 61% of respondents were customers of
small-cars, 34% preferred the mid-car segment and 5% of respondents preferred the
luxury car segment.
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5. Among the choices of Banks provided to respondents i.e. Bank A, Bank B and Bank
C, 58% of respondents chose Bank B, 28% chose Bank C and 14% chose Bank A.
Bank C had the lowest interest rate among all 3 banks while Bank B offered interest
rates as per industry average and Bank A had the highest interest rate. Therefore, in
spite of Bank C offering the lowest interest rate, it was seen that customers preferred
Bank B. This indicates that customers are looking for a few more favorable service
terms other than only the interest rate.
6. A majority of respondents ranked the Interest rate as the most important factor in
selecting an auto loan. But customers were also looking for favorable down payment
charges, lower prepayment or foreclosure charges, loan tenor as well as a quicker
loan disbursement process.
Recommendation:
Bank B was the most selected option among respondents. Compared to Bank C,
Bank B had a higher interest rate but had more favorable terms of services which
included a lower down payment and a quicker loan disbursement process which
customers rated highly.
Compared to Bank A, Bank B did not offer the structured mode of payments which
Bank A offered but had offered lower prepayment charges and a lower interest rate.
Therefore, although structured payment methods were highly preferred among the
small car customers, the rate of interest was the single most defining factor which
prevented customers from opting for Bank A.
Therefore, in order to attract a newer group of customers in this segment, the rate of
interest would need to be more competitive with industry standards, especially in
comparison to Public Sector Banks. Along with the Rate of Interest such as that
offered by Bank B, Structured Payments such as the Step Down mode and Bullet
payment would then be highly desirable among these customers.
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2. 65% of respondents preferred a loan tenor of 5 years and a LTV deal of 80-90%.
16% of customers had preferred an LTV deal of 90-100% which was an increase
from those who preferred the same in the small car segment (8%).
3. 68% of respondents preferred the structured payment methods. The younger groups
of respondents (18-40 years) were more favorable towards customized payment
facilities which suited their needs whereas the older groups of respondents were
more averse to these methods.
4. In the Mid Car segment, respondents who preferred structured payment methods,
preferred the Bullet mode of Payment (44%) while 36% preferred the Step Down
mode of payment. The customers in this segment were of a higher income group
and hence, preferred the Bullet mod of payment which suited their needs. The Step
Down mode of payment would have resulted in a much higher initial payment period
and hence was not as preferred among respondents compared to the Bullet mode of
payment.
5. Choice of Bank: 54 % preferred Bank B, 32% preferred Bank C and 14% preferred
Bank A. It is therefore seen that customers here were more sensitive towards to the
rate of interest offered. But again, along with a favorable interest rate, customers
also sought others service terms which would be more favorable to their needs.
6. Other than the Rate of Interest which was the ranked the most important factor
(78%), down payment, prepayment charges, loan tenor and loan disbursement were
ranked as important factors in determining an auto loan.
Recommendations:
Even in the mid car segment, Bank B was preferred but a higher percentage of
customers chose Bank C in this segment compared to the small car segment.
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In order to attract customers in the mid car segment, a competitive interest rate
would need to be introduced such as Bank B along with the introduction of the Bullet
Mode of payment would help in attracting customers in this segment.
Recommendations:
Customers in this segment would generally prefer, other than a low interest rate, a
hassle free documentation process and a higher LTV deal as indicted by the ranking
given to these terms of services. Even if customers here are offered a higher rate of
interest as per industry average, a higher LTV deal as well as a quick loan
disbursement process must be provided to these customers.
Additional Cross Selling Services:
1. Insurance on loan cover (Credit Assure) was well received among customers (78%)
2. Also a Discount on vehicle insurance was also preferred among respondents (59%)
3. The concept of keeping margin money as a fixed deposit for a 100% loan
disbursement was well received by 22% of customers.
4. The other services mentioned in the questionnaire were not that well received
among respondents.
Recommendations:
Insurance on loan product should be well promoted among car buyers to increase its
visibility and eventually it would lead to acceptance of the insurance product.
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Also, a vehicle insurance discount should be provided to those customers who seek
an ICICI bank auto loan.
QUESTIONNAIRE
We would be grateful if you could answer the following questions honestly. Your
valuable time spared will assist us in collecting relevant data in our area of research. All
information collected will be treated as confidential. Information gathered is strictly for
research purpose.
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Annual Income (Rs):
Less than 1,00,000 1,00,001 – 4,00,000 4,00,001 – 7,00,000
2) What would be the price range of the Car you intend to purchase? (Rs. In lakhs)
3) What type of Rate of Interest (ROI) facility do you prefer on your auto loan deal?
Fixed Floating
4) What is the % of Loan to value (LTV) deal you expect for your auto loan?
Less than 50% 50-70% 70-80% 80-90%
90-100%
7) If Yes, please select your preference among the following flexible EMI repayment services offered.
EMI services
Step Up
Step Down
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Bullet Payment
Rear End Balloon
9) Please see the terms offered by three different Banks A, B, and C for a particular car in your price
range. As per your requirements, please tick the Bank you would most likely seek to finance your auto
loan.
Loan Disbursement (in days) 1-3 days 6-8 days 10-12 days
Loan to Value (LTV) deal (%)
90-100% 85% 80%
*(On-Road Price)
Ceiling on Loan Amount No Ceiling No Ceiling Rs. 10 Lakhs
Rate of Interest
1.0-1.5% above At Par 0.5-1.0% below
*(as per industry average)
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Bank A Bank B Bank C
10) With reference to the previous question and as per your selection, please rank the 4 most Important
Auto Loan Terms of Services offered.
(Rank 1 – Highest importance to Rank 4 – Lowest importance)
11) What kind of additional services do you expect along with your auto loan? Please check the boxes
below:
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Discount on (Please select from below):
General Insurance premium (Vehicle) Education Loan
Health Insurance premium (for self and family) Personal Loan
Life Insurance premium
Bibliography
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