“We Have Maintained A Net NPA Rate Below 1%!”

Maintaining a low non-performing asset (NPA) rate is considered one of the key factors determining the success of an NBFC (non-banking financial company) operating in the commercial vehicle finance industry. Revfin, a new-age NBFC, has consistently maintained NPA rates as low as 1%! But how has the company achieved this feat? Sameer Aggarwal shares the secret sauce and his perspective on the commercial electric vehicle finance industry in India!

Q. Can you tell us about your background, the concept behind Revfin, and your journey?

A. I began as a banker, working in credit risk management analytics for around 13-14 years in various countries with different consumer lending products. I founded Revfin in India to serve financially excluded segments through digital underwriting and data generation. Initially, we financed electric three-wheelers, particularly e-rickshaws, recognising a market gap and potential for significant economic impact on customers. This segment had high demand, low competition, and risk mitigation benefits for lenders. Revfin has grown to operate in 23 states, with a network of 1200 dealers and partnerships with 35-40 OEMs. We have financed 37,000 electric vehicles and are expanding rapidly, now with a team size of 330 employees.

Q. Why is retail financing in the commercial electric vehicle (CEV) sector not as prevalent as fleet financing, and what can be done to promote it?

A. The lack of retail financing in the CEV sector primarily stems from two factors: customer acceptability and product economics. Customers, especially those purchasing for commercial use, are discerning and seek products with favourable economics—low cost, high revenue potential, adequate life, and reliable range. Currently, many L5 electric vehicles (EVs) do not meet these criteria. The progression typically starts with fleets buying EVs, then progressing to loans and leases. The next step, gradually emerging, is retail leasing, where the risk for customers is lower as they do not own the asset. This could eventually lead to increased demand for retail loans.

Q. Can separating the financing of the electric vehicle and its battery mitigate the risk?

A. The risk is not significantly mitigated by separating the financing of the vehicle and battery. The entire product ecosystem needs to be robust, including dealership training, spare parts availability, and honouring warranties. The market needs to have confidence in the product, and initial losses might occur as part of this process. The approach towards electric vehicles should be distinct from traditional products, focusing on quality and after-sales support.

Q. Do startups like Euler, Omega Seiki, and AltiGreen face similar challenges?

A. Financing challenges are not unique to India but are a global issue, especially in the electric vehicle sector. These include the longevity and efficiency of the vehicle over the loan period, OEM stability, lack of secondary markets, and uncertainties about vehicle servicing and resale value. These factors make product risk difficult to quantify and thus hard to price into lending equations. The solution lies in creating an ecosystem involving OEMs, dealers, financiers, insurance companies, e-commerce platforms, fleet operators, and charging providers. By sharing product risks across this ecosystem, the sector can scale more effectively.

Q. How significant is the development of a secondary market for commercial electric vehicles in addressing financing challenges?

A. The establishment of a secondary market is crucial for mitigating financing risks associated with commercial electric vehicles. We have encouraged OEMs to have dealerships that also handle secondary sales. This approach creates micro second-hand markets, expediting asset turnover and boosting the credibility of resold products. Additionally, OEMs could guarantee a residual value for their vehicles or share the risk by buying back or replacing products that don’t perform as expected.

Q. Do you see a market opportunity for entities willing to take calculated risks in setting up electric vehicle refurbishment centres, similar to the online secondhand car market?

There is indeed an opportunity in the electric vehicle sector for setting up refurbishment centres. This market is emerging, with some players already exploring it. However, it is still in its early stages and not very large, which is why we don’t see major players involved yet.

Q. Why are larger financial institutions hesitant to finance commercial electric vehicles (CEVs), and what role do you see for companies like Revfin in this context?

A. Revfin views its role as not just a financier but as an ecosystem creator. This involves partnering with OEMs, dealers, insurance companies, telematics providers, e-commerce platforms, fleet operators, and charging or swapping companies. Such a comprehensive approach is necessary to address the unique challenges and risks associated with CEVs. The current mindset and DNA of large financial institutions may not be conducive to adapting these new strategies. For the next three to five years, larger financial institutions are more likely to engage in the CEV market through collaborations with companies like Revfin, which have already developed the necessary ecosystem and expertise.

Q. What is Revfin’s current NPA rate, and how do you maintain such a low rate despite scaling up; what would be your secret sauce?

A. Revfin has maintained a net NPA (non-performing assets) rate below two percent throughout our five and a half years of operation. Even as we scaled up to financing 37,000 vehicles, this rate has remained consistently low. Regarding defaults, even if 10% of our customers were to default, our recovery process is efficient. We currently recover about 85% of the loan principal by repossessing and reselling vehicles. Our ‘secret sauce’ is primarily focused on ecosystem development. Ensuring that financed vehicles are roadworthy and perform as expected is key. If a vehicle runs well, it is either being used by the customer to earn and repay the loan or can be resold at a good value. This dual approach of customer earning potential and asset resale value underpins our low NPA rate.

Q. You mentioned utilising AI and ML technologies to maintain a low NPA rate. Please elaborate on that!

A. Revfin’s strategy hinges on data generation and utilisation, a crucial aspect given the lack of pre-existing data in our customer and vehicle segments. We collect comprehensive data during the loan application process and also install telematics in financed vehicles to monitor movement, battery performance, and driving behaviour. This data is then analysed using AI and ML. For instance, by observing average driving distances, we could advise customers driving less than average to increase their distance to cover EMIs, which successfully led to increased usage. Additionally, we assess factors like geography, age, vehicle type, and battery to predict a customer’s potential income and driving habits. On the customer side, due to the absence of credit or banking history, we developed a psychometric assessment tool. This tool helps us understand customers’ personality profiles and intentions to repay loans.

Q. How does Revfin use gamification to encourage better payment behaviours among customers?

A. Revfin employs gamification techniques to positively influence customer behaviour, particularly in terms of loan repayment. This involves setting up challenges and rewards. For example, customers who make payments through their bank accounts receive rewards. Similarly, we encourage customers to drive additional kilometres by offering cashback or a reduction in their EMIs. The gamification strategy is implemented both programmatically and through specific campaigns, tailored to encourage certain behaviours and incentivise customers accordingly.

Q. Do you believe commercial electric vehicles, like two-wheelers, three-wheelers, and four-wheelers, will adopt electric mobility faster than personal electric vehicles in India?

A. Absolutely, commercial electric vehicles should and likely will adopt electric mobility faster. The primary reasons for transitioning to electric vehicles are environmental benefits and economic advantages. These benefits are maximised when vehicles are used extensively, which is more common with commercial vehicles. Focusing on small intra-city commercial vehicles, including two-wheelers, three-wheelers, and certain four-wheelers like taxis and mini trucks, is crucial. This segment, especially vehicles under 1.5 million rupees, should be our priority for electric transition, as it promises rapid adoption.