Car loan rates rise 2% in a year
In a country where majority of cars are financed, the increase in car loan interest rates has not had any impact of car sales. Despite the interest rate going up 1.5-2.0 % in the last one year, car sales have shot up 30 %. Passenger car sales soared to 1.98 million units in 2010-11 from 1.53 million in the previous year.
Interest on auto loans up to Rs 5,00,000 is between 10.25 % and 12.50 %. While State Bank of India (SBI) is offering sbi car loan at 10.25 % for the first year and 9.25 % for subsequent years, most private banks are charging 12.50 % interest.
Banks are offering discounts of 1 % to high-value customers and are offering loans over Rs 5,00,000 at 11.5 %.
About 65-70 % of the passenger cars are financed and passenger car finance market is around Rs 22,000-crore, according to industry officials.
According to the Reserve Bank of India (RBI) data, vehicle loan (both passenger car and commercial vehicle) outstanding till February 25, 2011, was Rs 43,801 crore compared to Rs 36,522 crore in the same period a year ago.
“Interest rate has not affected the demand for auto loan. Demand for car loans remains strong. It is one of the fastest growing segment,” said a senior SBI official. SBI has become very aggressive in car loans. Bank has said car loan and home loan remain focus area of the bank in the retail segment. At end of October-December 2010 quarter, the auto loan outstanding of the bank shot up by 52.23 % to Rs 19,808 crore.
Until two years back, before the financial slowdown in 2008, retail banking was purview of the private sector banks such as ICICI Bank and HDFC, but now SBI has rewritten those rules with lowest interest rates.
“Domestic demand for passenger cars remains strong. The lending environment for car loans also remains favourable. The hike in interest rates and fuel price does not seem to have impacted demand,” said Joseph George, auto analyst, BNP Paribas Securities Asia.
RBI has hiked its repo rate eight times by a total of 200 basis points since March 2010 to rein in inflation. One basis point is one-hundredth of a percentage point.
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