The increasingly competitive banking sector and hopes of a policy rate reduction by the banking regulator, Reserve Bank of India, has driven key auto financing firms to slash the interest rates on auto loans.

On the matter, the Executive Vice President of Kotak Mahindra Bank, Mr. Sumit Bali said, "We have just reduced interest rates by 25-50 bps and a number of other players are also mulling the same option. Right now, the rack rates in auto loans are in the range of around 11.5-12.25%."

Private sector lender, HDFC Bank is contemplating such a rate cut following the hints given by RBI that it may reduce key policy rates in its upcoming monetary policy review. Talking about it, the Senior Executive V.P. of HDFC Bank said, "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." It is speculated that HDFC bank may announce revised interest rates on retail loans this week.

However, car manufacturers do not think that small rate cuts will have any desirable effect in increasing car sales. Mr. P Balendran, the spokesman of General Motors India says, "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."