At the start of 2008, Manoj Singh headed Tranzact Consolidated India, among the largest direct sales agents in Mumbai with about 200 employees.

Today, the 37-year-old is looking at other career options. The agency has shut shop and Singh is involved in several legal cases related to cheques issued by his agency that were not honoured.

Till banks scaled down retail loan growth, Tranzact, Singh said, generated an annual business of nearly Rs 100 crore (Rs 1 billion) for a leading foreign bank by hawking home loans, personal loans and loans against shares.

"As interest rates and delinquencies went up, banks turned reluctant about disbursing loans that led to huge losses for us. Gradually, we asked the employees to leave and decided to close the agency in June, when only 15 employees were left," said Singh.

In Andheri, a western Mumbai suburb, Samar Shelar, who has been running SS Enterprises for the last two years, said the slowdown has forced him to reduce the size of the team to just three. Business has come down to less than Rs 3 crore (Rs 30 million) a year from Rs 12 crore (Rs 120 million) to Rs 15 crore (Rs 150 million) in the last three or four years. "If things continue this way till March, we will have to close," said Shelar.

High interest rates and the economic slowdown have forced banks, especially the private and foreign players, to scale down loan growth to check delinquencies. As a result, DSAs, who were responsible for originating over 30 per cent of retail loans, have been badly hit.

On a year-on-year basis, up to August 26, the latest period for which data are available, retail loans, including home loans, credit card outstanding and finance for purchase of consumer durables, grew 17.4 per cent against 21.4 per cent during the year to August 30 last year (see table).

Since September 15, when the global credit crisis deepened after the collapse of Lehman Brothers, banks have scaled down loan growth rates even further.

Feeling the pinch
Loan	Outstanding as on Aug 29 2008	Y-o-Y variation
		Aug 31, 2007		Aug 29, 2008
		Absolute	%	Absolute	%
Personal	5,52,090	82,953	21.4	81,729	17.4
Housing	2,68,804	34,333	17	32,792	13.9
Against FDs	44,100	7,900	23.8	2,999	7.3
Credit cards	29,056	5,161	49.5	13,461	86.3
Education	23,795	5,411	45.9	6,603	38.4
Cons durables	8,003	513	6.3	-691	-7.9
Outstanding & absolute amounts in Rs crore; change in % (Source RBI)

Banks like ICICI Bank [Get Quote] have become extremely selective about offering retail loans, especially unsecured ones, and smaller players like Development Credit Bank [Get Quote] have virtually stopped lending. Most foreign and private sector banks have stopped small-ticket personal loans and consumer durables financing is hard to come by.

While banks are not lowering interest rates to discourage borrowers, they have also tightened credit appraisal rules, resulting in many more loan proposals being turned down.

"The impact was felt the most during September and October. Earlier, our loan approval rate was over 50 per cent; now, less than 20 per cent of the leads generated by DSAs are approved by the banks. This affects the commission we earn and our overall finances," said Kalpesh Goel, proprietor of Dream Finance, a Mumbai-based DSA.

"The problem is more acute in the salaried class. Most loan applications are now being rejected due to Cibil which has aggravated the problem," said Radhika Gupta, who runs Samriddhi Financial, a DSA in Delhi. Cibil stands for Credit Information Bureau of India Ltd, which generates credit scores.

Bankers also pointed out that they are relying more heavily on internal sales force and branches to hawk loans as lenders prefer dealing with customers with whom they have a relationship. "We do not solicit customers any longer. So, there are no text messages or tele-calling. We are focussing on selling credit products through our branches based on the need of the customer," said a senior ICICI Bank executive.

The change in strategy is also showing in the bank's financial statement, with direct marketing expenses falling 62 per cent to Rs 145 crore (Rs 1.45 billion) during the quarter ended September 2008, against Rs 385 crore (Rs 3.85 billion) in the same period last year. Other banks do not disclose these numbers.

All this means that there is little left for outside agencies. So, many DSAs, who were drawing between Rs 5,000 and Rs 10,000 a month in addition to commission on every loan sold, are now effectively jobless.

With projections not looking too optimistic over the next few quarters, the DSAs are now looking at other options to survive. Selling insurance policies is currently the most popular choice.