Rate cut, lower prices fail to renew the demand for auto loans
By Vaibhav Aggarwal
Dec 29, 2008
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Despite of a reduction in car prices prompted by the government decision to reduce Cenvat by 4%, auto loans demand in the country has not increased. Prospective buyers in the segment are still waiting for a better deal.

Bankers and car financers in the industry complain that even though they are offering auto loans rates 50 to 100 basis points below the their benchmark prime lending rate (BPLR), the demand has not yet picked up. UCO Bank is offering car loans at 13%, 75 basis points lower than the BLPR. It has also introduced a special offer where the loans are being offered at 12.25%.

Vice-President and Managing Director of Magma Fincorp, Sanjay Chamria said, "The scenario is as bleak as in November. Credit demand for automobiles has not increased. In case of commercial vehicles, the demand has gone down by at least 50 percent. In case of personal vehicles, it is 25 percent lower."

Presently car loans offered by the public sector banks and private sector banks stand at 12% to 13% and 15% to 16% respectively.

An executive from Union Bank of India reports that the loan demand in the month of December has come down. This is a reversal from the usual trend where the sales go up as companies offer various perks and offers in this season before raising the prices in January. Auto loan demand has not increase in spite of car makers giving heavy discounts and passing on the benefit of lower Cenvat to push up their sales figure.

United Bank of India Chairman and Managing Director S C Gupta said, "Auto loans did not see any substantial pick-up in the last few days. We hope the demand will increase in January." The bank is offering loans with 3 years of repayment period at 12.25% against the BPLR which stand at 13.5%.

However Chamria said, "The present cost structure does not allow us to cut rates further, as the cost of funds is still at 12-13 percent. It is not possible to offer further freebies and lower interest rates."

Some dealers in the industry feel that the buyers are expecting another round of rate cut by banks and incentives by the manufactures and this is a reason for postponing their purchase plans.

Though the public lenders are offering special schemes to inflate their loan portfolios, their private peers such as ICICI Bank and Citibank have held back their business in the fear of rising delinquencies. These private banks are following a wait and watch policy before cutting down the rates and returning back on the business.


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