Gone are the days when individuals use to queue in banks to get a loan sanctioned. Today banks are seeking for customers to increase their customer base and for this they prefer to lend to government employees since they are considered to be a safe bet.
The economic slowdown in the country has forced many private companies to lay off their employees and even stagnating salaries of the remaining ones. Following a situation like this banks are looking forward to bet on government employees to swell their auto loan portfolio. The default risk associated with these employees is low as compared to the customers working with private companies. In fact over the last few months, car makers have starting giving high discounts to government employee in order to attract a customer base with low risk.
Even the banks are offering low interest rate to such employees. Banking major including State Bank of India, Punjab National Bank and HDFC Bank are not only offering an option of lower interest rate and zero processing fees but also sanctioning a higher loan amount to people employed with the government sector.
Besides the government employees, people with additional income or surplus cash will be offered speedy loans by the banks.
HDFC Bank has recently cut its auto loan rates by 50 basis points for government employees. Senior Vice-President of Auto Loans, HDFC Bank, Mr Rajan Pental said, "Right now, Government employees are the safest bet. Those who are self employed are seeing a dip in their incomes. Private sector employees are facing retrenchment and stagnation in their salaries."
The banking officials claim that such a practice is followed because it is expected to help banks and finance companies to avoid defaults when sanctioning a loan. Moreover lenders are considering additional criteria to prevent the defaults. They think that an additional source of income or substantial net worth of the customer would increase the probability to timely payment of equated monthly installment (EMI).
"The Government employees have received their arrears. With higher pay scales now, they have surplus cash to buy cars," said Mr Sujjan Sinha, Senior Vice-President, Retail Banking, Axis Bank.
President of Federation of Indian Automobile Dealers Association, Mr S.P. Shah said, "While banks provide 70 percent finance on the loan amount for private sector employees, public sector staff can avail themselves of as much as 80 percent. Some banks are even waiving off the processing fee."