Case Study 1.

ABC finance ltd is an NBFC, with 150 branches spread all over India. Its retail product portfolio includes loans for tractors & farm equipments, cars, commercial vehicles (small, light, medium & heavy), & construction equipments. ABC has applied for a banking license and has many chances to become a bank. In order to expand its commercial vehicle and allied lending and increase income, ABC has introduced 3 Wheeler finance product a couple of years back. Both passenger and commercial 3 wheelers are funded, though 75% cases are commercial segment only. Average funding amount was Rs. 1 lakh. Keeping in view the high collection costs, the minimum rate of interest was fixed at 21% and maximum tenure offered was 36 months. Cases were sourced within 60 km radius from branch. ABC has entered into tieups with equipment manufacturers to support its business. 3 Wheeler sourcing was done by team already handling Small Commercial Vehicle (4 wheeler) finance. Collection had a common team across retail products. All the retail product loans were processed by a central credit team and relative strict norms were adopted for sanctioning the loans, it being a new business for the company. At the end of 2 years the performance of the product is being reviewed. It was found that around 5000 proposals were sanctioned and disbursed. In 60% of the cases, the repayments were not on time, NPA was around 3% and another 3% were the potential NPA cases. Considering the dismal performance, ABC is thinking of discontinuing the product. Keeping the above in view, please discuss the following: Should ABC discontinue the product? What went wrong with the product? What measures should be taken if ABC wants to continue the product?

Case Study 2.

ABC finance ltd is an NBFC, with a strong rural presence with its 150 branches spread all over India. Out of its total book size of Rs. 25000 Crs, rural retail portfolio accounts for over Rs. 15000 Crs. Its product portfolio includes loans for tractors, harvesters, cars, commercial vehicles, housing loans and micro finance loans. ABC has applied for a banking license and has many chances to become a bank. In order to expand its agricultural lending, ABC has introduced dairy finance product a year back. Livestock, dairy equipment and other related machinery for setting up dairy units can be financed under this product. Though there was no restriction on the maximum funding limit, minimum limit was specified at Rs. 1 lac. Keeping in view the initial operational costs, the minimum rate of interest was fixed at 15% and maximum tenure offered was 60 months. ABC has entered into tie-ups with equipment manufacturers to support its business. The product was introduced in 5 clusters present in Gujarat, Maharashtra and Madhya Pradesh states. Each cluster was handled by a dairy cluster manager and with an intention to carry out business in a radius of 200 Kms. Though these cluster managers doesnt have technical expertise in the dairy business, they have rich rural experience. All the dairy loans were processed a central credit team and very strict norms were adopted for sanctioning the loans, as it is a new business for the company. At the end of one year the performance of the product was reviewed. It was found that around 500 proposals were sourced by the business team out of which 200 were sanctioned. 100 loans were disbursed and the average ticket size was found to be Rs. 3 lacs. In 60% of the cases, the repayments were not on time, 10 proposals were potential NPAs, of which one was a 2 cr loan given to a HNI client in Tamil Nadu. In all the potential NPA cases, the livestock funded were found to be missing. The total revenue generated by the business was Rs. 25 lacs was found to be well short of the total expenses (excluding allocated expenses) of Rs. 60 lacs. The potential NPAs were not provided by ABC yet. Considering the dismal performance, ABC is thinking of discontinuing the product. Keeping the above in view, please discuss the following: What went wrong with the product? Should ABC discontinue the product? What measures should be taken if ABC wants to continue the product?