combo deals

Written by Saikat Neogi | Updated: Oct 23 2012, 09:12am hrs
To cash in on the festive season, public sector banks are offering special rates for customers taking housing and auto loans together

To revive the sagging sales of automobiles and homes during the festive season, public sector banks starting with Corporation Bank and, lately, the State Bank of India are launching combo offers with special rates. And as the icing on the cake, the public sector lenders are also slashing the processing fee by half.

Corporation Bank took the lead in offering the combo deal. Its Combo Offer taking both Corp Home and Corp Vehicle loan together provides an additional 0.25% concession in the rate of interest on the vehicle loan. Under this offer, the floating rate of interest for home loans of up to R50 lakh is 10.5% per annum, 10.75% for loans between R50 lakh and R1 crore, and 11% above R1 crore. The interest rate on auto loans is 11.25% for a five-year tenure and 11.75% for seven years.

Kolkata-based UCO Bank will waive the processing fee on home loans if availed with a car loan. And to boost festive buying, the bank is offering a standalone scheme where 50% processing charge on home loans will be waived and 100% in the case of processing charges on car loans.

In fact, UCO Bank and Corporation Bank are not the lone public sector lenders offering such a combo scheme, which, till some time back, was mostly offered by large private sector lenders. This time around, public sector lenders have taken the lead to stay ahead of the competition as loan demand has been sluggish because of higher rates.

Punjab & Sind Bank launched a festival bonanza scheme for home and auto loans to enable customers to realise their dreams of purchasing a home and a car. The bank is financing 100% on-road price of the vehicle and comes with longest repayment of up to seven years on a daily reducing balance.

There is no processing fee and the auto loans by the bank carry the lowest equated monthly instalment (EMI) of R1,699 per lakh. For home loans, the EMI is R915 per lakh up to R30 lakh for 30 years. The bank will waive its 50% processing fee on fresh housing and offers 100% waiver of processing fee for fresh loans in cases where the borrower is availing housing as well as auto loans .

DP Singh, chairman and managing director, Punjab & Sind Bank, says there is no maximum ceiling on the amount of loan and the number of vehicles to be financed by the bank. He also said that the loan under the scheme is without any documentation charges except actual stamp/revenue expenses and does not entail any prepayment charges.

Central Bank of India, too, has lowered the interest rate on retail loans for home, vehicle and personal loans and has slashed processing for a limited period. Even the country's largest public lender, State Bank of India, reduced the processing fee on home and auto loans by 50% to cash in on the festive season demand. This offer is applicable on loans availed from October 17 to December 31. For home loans up to R25 lakh, the processing charge will now be 0.125% of the loan amount from 0.25% earlier. In the case of loans between R25 lakh and R75 lakh, the processing fee would be R3,250 against R6,500 while for loans above R75 lakh, it would be a flat R5,000 compared with R10,000 per application earlier.

With regard to auto loans, the processing charge has been slashed to 0.255% of the loan amount versus 0.51% earlier. The new processing fee for home and auto loans will be the lowest in the banking industry. In September, the lender reduced its base rate or minimum lending rate by 0.25% to 9.75% following the Reserve Bank of India's decision to reduce the cash reserve ratio by 25 basis points to 4.5%.

Analysts say the aggressive lending initiatives by public sector banks follows finance minister P Chidambaram's recent diktat to public sector lenders to lower the EMI burden of people and spur buying activities in the market, which would then boost the country's manufacturing activity and fuel growth.

Passenger vehicle sales growth slowed to 7% during the financial year till September and sales of medium and heavy commercial vehicles have contracted almost 13% during the period.

Analysts also say it will be too early to conclude that the combo offers will be able to bring some zing back for credit offtake. Also, private banks not having jumped on the bandwagon is a clear indication that the macro factors are still not that encouraging to boost discretionary sales like automobiles or big-ticket purchases like real estate.

Also, typically, it makes more sense to wait till December to buy the new wheels for heavy dealers discount and year-end inventory clearing sales.