By Ketan Thakkar

Volkswagen Finance Private Ltd, the captive finance arm of the world’s largest automaker Volkswagen Group, plans to pull out of its NBFC business and decide the future of its Indian operations by the end of this quarter, ET told ET three people familiar with the development.

A decision on the financial branch is important because it precedes the group’s most critical 2.0 deployment plan in the country, which aims to increase the Group’s market share in India to 5% by 2025, against less than 1 , 5% currently. This will force the Group to offer alternative options to its dealers and customers.

“With its innovative digital credit platform, KUWY is the market leader in meeting the growing demand for new and used car financing. Based on its positive experience and for commercial policy reasons, VWFPL India, in close coordination with the brands of the Volkswagen group, will review its commercial strategy for dealer financing by the end of 2021 ”,Volkswagen Finance.

The role of the captive financial arm is to help accelerate the penetration of the parent brand faster and deeper into the country instead of just making money from the financing.

At its peak, VWFS disbursed over $ 1 billion in funds in India, which has more than halved in recent years, especially after it halted retail funding.

Three people confirmed that the finance industry stopped lending retail to its customers last year and that Volkswagen Finance is also expected to stop lending to dealers for equity financing within six months.

The decision to stop lending to concessionaires who accounted for more than half of loan disbursements was discussed in May. A formal decision is expected to be made at a meeting in the coming weeks, people familiar with the matter say.

“The company might even consider relinquishing its NBFC license and could become a commission agent or broker,” said one person familiar with the plans.

With the exit of the captive branch, securing financing of a dealer’s inventory for higher volumes expected from version 2.0 will be difficult and may require larger guarantees and higher interest expenses, experts say. .

A shrinking Indian passenger vehicle market, bleeding dealerships with a fair share of NPAs, and the complexity of competing with major banks and NBFCs in India have forced Volkswagen Finance to rethink its business model.

Instead, the company is focusing on fintech firm Kuwy to cater to retail buyers. Kuwy is a subsidiary of VWFS.

By 2020, the company stopped lending to retail clients after taking a stake in a fintech firm Kuwy (in 2019), which is an aggregation platform. Witnessing strong traction in Kuwy, VWFS increased its stake and became the majority shareholder in January 2021.

In an official response to the ET’s queries, Volkswagen Finance Private Limited said that in January 2021, VWFPL India acquired a majority stake in the Indian loan brokerage portal KUWY Technologies in order to meet the growing needs of its customers of retail for digital sales channels and individuals. funding possibilities.

“With its innovative digital credit platform, KUWY is the market leader in meeting the growing demand for new and used car financing. Based on its positive experience and for commercial policy reasons, VWFPL India, in close coordination with the Volkswagen Group brands, will review its business strategy for dealer financing by the end of 2021, ”the statement added. Volkswagen Finance.

In the last 12-18 months VWFS workforce has grown from 300 to 150 and most of them have taken up the post in Kuwy and a significant portion of the balanced workforce may also be denied the possibility of moving to Kuwy, added one of the four people in the know.

The liquidation of captive financial branches may not have a significant impact, depending on the group companies.

A senior Volkswagen group executive said: “VWFS is an independent entity. We respect their strategic decision, whatever it is. Our network, business model and product portfolio are strong enough that we can manage the central links. for other financing options. Dealers have six months to review another arrangement. “