New Delhi: The people's car from Tata, called Nano has created a new opportunity, which the banks definitely don't want to miss. However, the customer profile that is expected to go for Nano is mostly middle class and lower middle class, and banks are worried that these segments have a higher risk profile as compared to other car loan borrowers.

Tata Nano is expected to create a huge dent in the two-wheeler segment and many two-wheeler owners have already expressed interest in owning a Nano. They are even willing to defer their decision to buy another or a new vehicle till the car is available in the market. The two-wheeler loan segment has one of the highest default rates among various retail loans and hence carry a higher rate of interest.

At present the car loans in India are available from lenders at interest rates ranging betwen 12-16 percent, while the two-wheeler loan segment have higher interest rates ranging between 18 -22 percent. In addition to the high interest rates, two-wheeler loans have low tenures generally around two years, while car loans are available for around 7 years.

This loan tenure and interest rate scenario of two-wheeler loan segment can come into picture since the entry level model of Nano is expected to cost around 1.25 lakhs. Keeping in mind the income profiles of this segment of borrowers, banks are contemplating on adding a 'running cost' component to the loan for Tata Nano.  This could effectively increase the loan amount and hence enable banks to offer loans of longer tenure with lower EMI's, which could be easily afforded by borrowers of this segment.

The resale value of Tata Nano and design defects, which have been a regular feature of Tata's popular cars like Indica, are also making the banks take a cautious stand on financing Nano. P. Sridhar, Senior VP,IndusInd Bank said, "If there are design defects it will affect the resale value of the car which could drop to just Rs 50,000-60,000."