BANGALORE: The defaults on two-wheeler loans in Indian market have jumped up to a whopping 40%. This has led to an increased scrutiny of all new loan seekers and the once affordable two-wheeler could now be slipping out of a commoner's reach.

The reason for this increase in defaults can partly be attributed to the sub-dealers. They have been blatantly issuing two-wheeler loans on the basis of temporary registrations.

This leaves the bank in a tricky situation, since it has no permanent documents regarding the two-wheeler and hence no collateral. If a person chooses not to make any further payments, it becomes difficult for the bank to track down the borrower and recover its dues.

Ashok Khanna, head (auto loans) at HDFC voices his concern, "The rise in defaulters is largely because of sub-dealers issuing bikes on a temporary registration and not following up on a permanent registration."

Banks have now come hard on sub dealers using temporary registration to get the loan sanctioned. A clear consensus seems to be emerging amongst the lenders to issue loans only for those vehicles, which have a permanent registration.

Another reason fuelling these defaults is the recent hike in interest rates. The home loan interest rates have skyrocketed and for people who have a home loan and a two-wheeler loan, situation can become very tight forcing defaults.

Most banks have significantly tightened loan sanctions. Some banks that previously used to finance 90% of the bike cost are now reluctant to lend more than 70%. HDFC Bank, which was issuing close to 70,000 loans per month last year, is now issuing 45,000 loans now. ICICI Bank that used to lend close to Rs 400 crore per month for bike purchases last year, now disperses around Rs 300 crore per month. This reduction in loan sanctions has also led to a significant decline in bike sales.

ICICI Bank, one of the largest private sector lending institutions, issues two wheeler loans to salaried, self-employed individuals, pensioners, housewives and students aged between 21 -65 years provided they meet other eligibility requirements.