Auto loans turn expensive despite CRR cut
By Vaibhav Aggarwal
Oct 13, 2008
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There's no mistaking that the global financial crisis has found its way to India's shores at a time when the country is in no shape to weather it. The Indian auto industry is also bearing the repercussions as the major auto financers in the country have either hiked the interest rates by 100 basis points (1%) or are planning to do so shortly. This has come despite the CRR cut by the RBI.

This is the third hike since August and has led to a total increase of Rs 150 in the equated monthly installments for a loan of Rs 3 lakhs for a period of three years. The three cumulative hikes in auto loan segment have raised the interest rates by 250 to 300 basis points or 2.5% to 3% since the beginning of current fiscal.

Sumit Bali, CEO, Kotak Mahindra Prime says: "The recent reduction in CRR has only made more money available with the bank. As a result banks will become little more aggressive on the lending front. But the fact that the amount released is very low and there is no sign of easing of rates on other fronts, we have increased the auto interest rates by 100 bps."

"Interest rates are the net impact of several factors like deposit base and operating costs and since the situation continues to be tough, the 100 bps hike was inevitable," agrees N Ravnarain, auto finance head, ICICI Bank.

The revised rates of ICICI Bank would range between 15% and 15.5% as compared to the earlier range of 14% to 14.5%. The new rates will be effective from October 10th.

The Leading Car Financer HDFC Bank is also increasing 100 basis points in auto loans from next week. . "At this juncture where banks are starved of cash, the interest rates could only be revised upward despite the recent cut in CRR," says Rajan Pental, auto finance head, HDFC Bank. "Though there has been no decision, we might go for a 100 bps hike next week," he adds.

An analyst says, "At a time when the passenger car industry is struggling to pick up speed, the increase in interest rates would dampen the overall sentiments of the buyers during the festive time."

Indian automakers witnessed a marginal rise in sales in the month of September but it had dropped substantially in July and August. With the ongoing festive season, car dealers and auto makers in India were hoping to clear their inventory which had piled up in past three months but this hike in rates would dampen the spirits of those planning to buy automobiles.

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