In a bid to augment automobile demand, department of heavy industry (DHI) directed public sector banks to offer auto loans at special interest rates but the banks are not planning to follow the direction.

Indian Banks Association Chairman T S Narayanasamy said, "No, we are not planning any such package for the auto sector."

A proposal regarding the issue has been sent by DHI to the prime minister's apex committee which is calculating measures required to boost demand in the various sectors of the economy. An official from the department said, "We have given our proposal, which includes priority sector lending for auto component makers. Now, it is up to the committee to take a final call on this."

However the finance ministry complement with the views of Narayanasamy and said that there is no requirement for a special interest rate in the auto industry because the lending rates are declining across all the sectors.

An official from the finance ministry said, "Public sector banks have already announced cut in lending rates by up to 200 basis points since December 1. They are expected to announce further cut in their benchmark lending rates. There is no need for any specific interest rate concession for the auto sector."

Major PSU banks including State Bank of India (SBI) are already offering auto loans at rates lower than their benchmark prime lending rates (PLR). Auto loans of the banks are linked to the PLR and as the PLR is declining for most banks, auto loan rates are bound to decline. An official from a state-run bank said, "Auto loan rates have already slipped below 11% at most of the banks. Very soon they may come down to less than 10%. In such a scenario, we do not see any need for specific concession for auto loans."

Meanwhile the banks are offering auto loans to government employees at lower interest rates as compared to other borrowers. This practice is being followed to play safe at a time when economic situations are adverse and defaults are rising in the industry. By targeting to attract this section of the society, banks are planning to build a safe customer base.

The sector has reported 20% month-on-month growth after a 4% cut in the excise duty. This cut has helped the sector to see a revival in demand.

PSU banks have also announced special rates for home loan borrowers at the beginning of this month.