The impact of the hike in repo rate, as announced by the RBI, will be very clearly felt in the car sales. Banks all over the country are considering increasing interest rates on retail financing further, which would seriously affect car sales.

Leading bankers have said that following RBI’s move to increase its lending rates by 25 basis points, the interest rates on auto financing could go up by 25-50 basis points.

Sumit Bali, CEO of Kotak Mahindra Prime Ltd, the vehicle-financing unit of Kotak Mahindra Bank, said interest rates could go up by 50 basis points. He said, “Though we are yet to announce the hike, the increase would be around 50 basis points.” Bali also felt that the higher lending rates could bring down growth in car sales to from 12% in 2007-08 to 8-10% this year.

Citing the problems faced by banks, Ashok Khanna, executive V-P at HDFC Bank, said it was becoming increasingly difficult for banks to lend at present rates, as liquidity dried up and borrowing became expensive. He also said that the bank will be taking a call on revising lending rate on Saturday, hinting that it might go up by 25 basis points.

Currently, the average interest rate charged by banks on car loans hovers around 12-12.75% while in case of two-wheelers it’s as high as 22-23%. Interest rates have been moving up over the last two years. This year, the trend will be no different.