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SBI changes commission for car dealers to source more car loans


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According to an internal circular assessed by the Economics Times, the State Bank of India (SBI), the country’s largest lender, is planning to change the way it pays commissions to car dealers for sourcing loans. Currently, the bank pays dealers a fixed percentage as a commission. However, under the new structure, the commission will be linked to sales. The move is aimed at reducing costs and improving the profitability of the product. The revised payout structure will be applicable to all sourcing starting from June 1.

Details of the New Commission Structure

In a circular dated May 28, SBI’s chief general manager (CGM) Sukhvinder Kaur notified the new commission structure to the CGMs of local head offices. The circular states that the dealer payout is a significant part of the bank’s expenses in car loan sourcing and heavily impacts the profitability of the car loan product. To address this, a performance-based dealer payout structure has been approved. Under the existing structure, dealers earn a flat 2% commission (including GST) for loan disbursals ranging from ₹50 lakh to ₹15 crore. However, under the new tiered structure, dealers must meet certain disbursal milestones to earn commission.

The new commission structure starts from a minimum commission of 0.5% (including GST) for disbursals equal to and above ₹50 lakh to less than ₹1 crore. It goes up to 1.3% (including GST) for disbursals above ₹15 crore. As a result, the replacement of the flat commission structure with a performance-linked tiered structure could effectively reduce the commission earned by dealers by half, according to an auto dealer.

Potential Impact on the Auto Loan Market

SBI, being a public sector lender and accounting for a fifth of the auto loan market (the second largest after HDFC Bank), may prompt private sector lenders to rationalize their commissions as well. Auto dealers earn revenue from selling cars, spares, after-sales service, and finance and insurance to customers. The change in SBI’s payout structure may weaken dealers’ bargaining power with other banks and impact their profitability, as stated by Manish Raj Singhania, president of FADA (Federation of Automobile Dealers Associations). Singhania also suggests that the bank should focus on improving asset quality rather than reducing payouts to dealers.

Response from State Bank of India and Other Lenders

An email from Economics Times requesting comment from the State Bank of India remained unanswered at the time of press. However, it is worth noting that some other public sector lenders have already decided to follow SBI’s lead. UBI Services, a wholly owned subsidiary of Union Bank of India, has also adjusted its commission structure.

According to an internal circular issued by Sanjay Bajoria, MD & CEO of UBI Services, the recent commission realignment by major players in the market has prompted them to offer better rates to partners and resonate with the market sentiment.

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