Auto loan rates set to come down next-year

Auto loan rates set to come down next-year

Rising component prices, rising fuel prices, rising interest rates, depreciation of the rupee and other negative economic conditions result in slowdown of auto sales in Indian car market. In order to increase sales, the top auto financial companies prompt either cut auto loan rates or think about it.

The car manufacturers say that 25-50 basis point (100 basis points = 1 percentage point) reduction in rates will not make much of a difference to the sluggish consumer sentiment in the automobile market.

“We have just reduced interest rates by 25-50 bps and a number of other players are also mulling the same option,” said Sumit Bali, executive vice-president, Kotak Mahindra Bank. “Right now, the rack rates in auto loans are in the range of around 11.5-12.25%.”

HDFC Bank is also mulling its rate strategy given the RBI’s indication that the monetary policy will shift gears from an inflation-driven one to a more growth-oriented one in the fourth quarter. Said Ashok Khanna, senior executive VP and business head-auto loans, HDFC Bank, “We need to take a strategic call on that immediately and we will do so. An actual rate reduction across the board may not be possible but some segment-wise options are being considered.” Sources say HDFC will announce new rates this week itself.

Car companies, however, aren’t too hopeful that a small cut in rates will make a substantial improvement to the overall consumer sentiment. Said P Balendran, spokesman, General Motors India: “The SBI has been very aggressive and other banks are now beginning to take a cue and slightly reduce rates by 25-50 bps but that hasn’t made much of a difference in the market. Sentiment continues to be quite subdued.”

The current rack rates are slightly better than the Q2 levels when auto loan rates hovered around the 14% levels. But car marketers are clear that unless they come down to the levels that they were before the current economic problem started, which is around 8-9%, demand will not pick up. The auto financing market is dominated by State Bank of India, HDFC Bank, ICICI Bank and Kotak Mahindra. Between them, the four big players command more than three-fourths of the auto loan market.


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