Auto loan rates set to come down

CRR Cut Boosts Liquidity, Offers Room To Lower Rates | Car Cos To Benefit

Chennai: RBI's decision to cut CRR by 0.25 percentage points may lead to a reduction in auto loan interest rates offered by big financiers in the business. Banking industry experts say with liquidity improving in the market, the lending rates—definitely auto loans but home loans too—will come down. While most private bankers are already in discussion over the matter, no announcements are likely before the beginning of October, say sources. 
    Sumit Bali, executive vicepresident, Kotak Mahindra Bank, said: "The CRR cut will help liquidity in the market and at this point it looks like there will be some degree of lending rate reduction as well. We will take a final call on the matter by the first week of October. From all account, it seems certain that auto loans will see a reduction and it may be across the board as well, including home loans." A top official in another big ticket private bank said, "We will take a call on the matter shortly." 
    While other big private banks are also in "wait-andwatch mode", banking experts say the extra liquidity points towards a lower rate regime in the market. Already, a clutch of public sector banks have reduced their rate cards. Earlier this month, Punjab National Bank, Indian Bank, Union Bank of India, Allahabad Bank, Indian Overseas Bank and Central Bank cut their auto loan rates. PNB also cut home loan rates by 25 bps and auto loan rates by up to 50 bps. SBI, too, slashed its interest rate on car loans by 50 basis points to 10.75% across tenors. 
    Understandably, the auto industry is cheering any reduction in interest rates, the main reason why car demand has hit skid row. Says Vishnu Mathur, director general, Society of Indian Automobile Manufacturers (SIAM), the apex body for the auto industry: "The auto industry's biggest problem has been rising interest rates and if banks work towards correcting that, it is a step in the right direction. Currently, the rates are very high for passenger cars for instance — around 14% — and 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 speed." 
    The auto financing market is dominated by State Bank of India, HDFC, ICICI and Kotak Mahindra. The four big players command more than threefourths of the auto loan market. The decision by some of the big PSUs to pare their rates came in the wake of some regional banks cutting rates as a promotional exercise. Mangalore-based Corporation Bank, for instance, has announced a reduction in its auto, home, NRI loans and other specific scheme rates for a limited period. With the festival season just round the corner, financiers see a rate reduction, even for a limited period, as a good marketing tool to improve consumer interest. 
TIME TO SHIFT GEARS 
äBanks expected to announce rate cuts by October 
äPublic sector banks have already reduced their rates 
äSiam says interest rates have to come down to 8-9% for the demand for cars to pick up 
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