New Delhi: The automakers in India have expressed their concerns about banks' unwillingness to extend loans to customers from certain states. Taking a note of the situation Finance Minister Mr. P Chidambaram has asked to shed such bias if any and provide auto loans without discrimination.

The recent slowdown in auto loan demand due to high interest rates was further aggravated by the banks' hesitation. The automakers association had met the Finance Minister with their demands.

The MD of a leading public sector bank said, "It was seen that geographically in certain states, banks were not forthcoming with tie-ups for giving loans for two-wheelers and four-wheelers. In certain states, companies felt that sales were very low. Wherever the credit flow to this segment is not there in certain states, the finance minister wanted us to take a view to see that it (credit) is uniformly spread.”

Banks have been facing rising defaults on vehicle loans in various states like Rajasthan, Uttar Pradesh, Haryana, Uttarakhand and Bihar. It has been difficult to track down the rightful owner and recover the dues in these areas.

Voicing his concerns, head of the auto finance for a leading private sector bank said, “Periodically, we have to take a course correction in a certain geography, if delinquencies are high. Some pockets have issues of borrower profile, law and order, and we are going slow for sometime.”

A loan loss ration of up to 2 percent for car loans and 4 to 4.5 percent for two wheeler loans is considered as 'acceptable' by banks. However, many areas of the states mentioned above have a default rate of 5 percent or more. Some pockets of Haryana and Rajasthan have default rates in excess of 10 percent.

Presently the banks charge 11 to 12 percent interest rate on car loans and 15 to 19 percent interest rate on two-wheeler loans.

The sagging demand has prompted the banks to reduce interest rates on auto loans and in the process ICICI Bank has introduced a new product, floating rate car loan in India.