Shifting gears: Banks begin to cut automobile loan rates

CHENNAI: An aggressive public
sector competitor and hopes of a
possible rate cut by the central bank
in the new year have prompted top
auto financial companies to either
cut auto loan rates or think about it.
However, car companies say the
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.