Auto financing banks have found a quicker and cheaper medium to dispose of the swelling pile of repossessed vehicles: online auction. Banks say realisation from online auction, on an average, is 12-15% higher than the traditional offline auction. Add to that the advantage of transparency, banks are swearing by the electronic medium.
?Online auctions are conducted by independent third party and hence the process is transparent, with no human intervention as against the traditional offline auction mechanism where rigging has always been a problem,? says Madhivanan B, senior general manager, ICICI Bank. ?Moreover, the participating cost and the cost of selling through an online mode are negligible, which means low operational costs and hence better profits,? he raves.
Another advantage, he points out, is that since there are no channels for negotiation, the bid price cannot be influenced by an individual buyer.
On the contrary, in an offline mode, the establishment costs might be lower but the operational costs are high. Also, quality issues exist in the system from high manual intervention.
Agrees Viresh Oberoi, managing director, Mjunction Services, a leading eCommerce company: ?Until two years ago, the open auction mechanism was the most prevalent way to sell the repossessed vehicles. However, since a huge part of the revenue was going to intermediaries, most banks have now taken to online auction in a big way as the realisation through this is 12-15% higher than the open auction system.?
Mjunction is a 50:50 joint venture between Tata Steel and SAIL, and enjoys 35-38% market share in the industry. The company sold 23,000 vehicles in 2007-08 and clocked a turnover of Rs 120 crore. But the portal is eyeing Rs 470 crore revenue and sales of 80,000 units in 2008-09, thanks to the increase in loan delinquency rates of late.
According to industry figures, 96,48,105 units were sold in the domestic market in 2007-08. Of these, around 80-85% or 77-78 lakh units were financed by leading banks and non-banking financial companies.
However, with 2-2.5% people ending up as defaulters, the number of repossessed vehicles is around two lakh units a year, which translates into a market of Rs 3,000 crore.
Moreover, with availability of auctioneers like eBay, Indiatimes, Autojunction and Matex, and their ability to constantly upgrade/customise the system to meet the needs of clients and bidders, prospective buyers may find the online platform attractive. These auctioneers also arrange working capital online, offer world-class security system and ensure complete transparency and integrity of data.
Another advantage of online auction is the ease of participation, both in terms of place and time, says a Mumbai-based analyst. ?Online auction ensures participation from any part of the country and that too any time during the auction, as these can be kept open for 24 hours and seven days a week,? he says, adding that bidders can participate at any point in time during the auctions and place their bids according to their convenience.
?Further since there is no direct access to banks or auctioneering firms, personal favours and cartelisation is ruled out and there is equal opportunity to small and big buyers to bid for the vehicles,? he explains.
Interestingly, the process is beneficial not only to banks but also to buyers as they have sufficient time to analyse the prices. ?Unlike in open auction, where the purchase decision has to be immediate, there is no impulse buying in online auctions, which means buyers have the flexibility to cross-check the prices and then take a decision,? says Oberoi of Mjunction.
On top of this are security cover like the necessity of KYC documentation for registration with any online auction firm and the ease of IP address tracking, which means in the event of buyers forming a cartel or a single individual creating multiple IDs and bidding, it can be easily tracked through IP address and thereafter the computer can be blocked from bidding. These also make the process transparent.
In the offline mode, which was in vogue for a long time, bank/NBFC would invite bid/quotation from prospective buyer (second-hand car buyers). These quotations were opened in the presence of two-three bank officials from various verticals like sales, operations and debit service management group to ensure transparency. However, since there was lot of human intervention in the entire process, a possibility of rigging was always there. So, financial institutions are moving on to online auction.
?The industry world over is moving from an offline to an online model, thanks to the growth in Internet penetration and access of the Internet through mobiles. Moreover, with the used vehicle market in India growing over $4 billion per annum, there is a huge growth potential,? says Madhivanan of ICICI Bank.
However, according to Madhivanan, various challenges restrict the medium?s growth. ?Sometimes, due to inability to physically feel the vehicle on sales, bidders restrict themselves to a certain price limit,? he says. The low penetration of the Internet and the low bandwidth and poor connectivity hampers the growth of the system, he feels.
Sumit Bali, CEO of Kotak Mahindra, feels the conversion rate (the bidder: buyer ratio) is low in online auction. ?The number of bidders in an online auction is far more than in the offline auction mechanism, but the final closure or purchase is not happening in the same proportion,? he says. ?If all those bidding actually end up buying the product, the absolute numbers would be much larger and ensure higher margins,? he points out. The mechanism, he says, needs to be scaled up substantially to rope in more bidders. That, in a way, is a pointer to the future of online auction.