The private lenders in the country have decided to stop financing the commercial and passenger vehicles due to the absence of clear guidelines laid down by the Reserve Bank of India (RBI) on repossession of vehicles from defaulting customers.

The bankers conveyed this message to the government in a meeting with RBI and finance ministry officials in the presence of representatives from auto industry.

However both RBI and finance ministry agreed that repossession is not illegal, if banks follow a given set of guidelines. "Repossession of any mortgaged property is not illegal as misunderstood by some of the borrowers. The government is working out with the RBI and the auto industry to bring out guidelines, which will help end the ambiguity regarding recovery and repossession," said an official from the finance ministry.

"The RBI will come up with detailed guidelines, empowering banks to auction repossessed vehicles. It may also include norms on getting repossessed vehicle back from the banks," he added.

Even PSU banks agree that the absence of clear norms on repossession has affected their business but at the same time their strong financial condition allows them to continue the auto loan disbursement.

Moreover the finance ministry data also reveals the banks unwillingness on extending the auto loans. The fresh sanctions of auto loans for the 15 days ended on March 13th have come down to Rs 767 crore from Rs 971 crore, a fortnight back.

In the past few months, private sector banks in the country have reported a negative credit growth to almost all the sectors.

Meanwhile, even though the private lenders have said to the government that they would no more extend finance for commercial and passenger vehicles but none of them have as yet made any public announcement.

An executive with a Mumbai-based private bank said, "We are lending on a case-to-case basis. The bank has to keep in mind the creditworthiness of the borrower. We are playing conservatively and going slow."

This matter has also come under the notice of Cabinet Secretary in his recent meeting with the industry representatives and banks chiefs.

Of all the vehicles purchased in the country, over 80% are financed. The combined auto loan portfolios of all the banks is estimated at around Rs 1,00,000 crore.