Auto loans portfolio of public sector banks is expected to rise despite of the slowdown trapping the economy. Major PSU banks expect that loans for cars and other passenger vehicle will go up by almost 20%-25% in the ongoing fiscal. On the other hand private lenders are reluctant to lend for the purchase of vehicle and thus expect a much lower growth against the former.

The PSU banks are charging lower interest rates as compare to the private banks on car loans and this has been the major cause of difference in expected growth between the two sectors. Public sector banks are offering auto loans in the range of 11.75% to 13.75% but the private lender are charging 15% and above for the similar category of loans.

An official form SBI said, "We are growing our portfolio faster than the average market growth rate." The bank has clocked a growth of 30% on yearly basis in the auto loan category. At the end of second quarter on September 30th, the bank recorded an outstanding auto loan portfolio of Rs 8,029 crore against Rs 6,153 crore, a year ago.

Another PSU bank, Union Bank of India also recorded around 25% year-on-year growth in its auto loan segment. A senior official from the bank said, "Unlike some banks, which resort to direct sales agents to garner business, we prefer dealing with customers directly through dealers. This way we have control over the customer profile."

However, the largest private lender, ICICI Bank does not expect much growth in its auto loans portfolio for the current year. Head of Vehicles Business of ICICI Bank, Mr N.R. Narayanan said, "Primary demand in the four-wheeler segment is coming down. The ratio of actual sales to purchase enquiries is coming down."

Also the official added that in the coming six months, auto loan market may see a negative growth. "By March 2009, I see a flat to negative growth," said the official.

Mr Mayank Pareek, Executive Officer, Marketing & Sales, Maruti Suzuki Ltd, said "private sector banks such as ICICI Bank and HDFC Bank, which were aggressive players in auto finance three-four years ago, have noticeably scaled down their lending from the beginning of this year. ICICI Bank's share of financing our vehicles dropped to five percent now from 35-40 percent earlier. We anticipated it and entered into agreements with PSU banks. Two years back, we tied up with SBI and associate banks, and now we are building on that and also the tie-ups with other PSU banks."

Earlier its was anticipated that the auto industry may see an increase in its sales figure because banks are trying to cut interest rates along with easing liquidity in the segment.