Now, shell out Rs 5K more for your 3-yr car loan

Yogima Seth
Posted: Thursday, Jun 26, 2008 at 2253 hrs IST
Updated: Thursday, Jun 26, 2008 at 2253 hrs IST

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New Delhi, Jun 25: Get ready to shell out over Rs 5,000 more on a car loan of Rs 3 lakh for a period of three years as major banks are planning to hike interest rates on auto loans by 100 basis points, thanks to the increase in the repo rate and hike in CRR by the Reserve Bank of India (RBI) on Tuesday. In May also, leading banks had increased the interest rate on auto loans by 25-50 basis points. Consequently, after the two close hikes, interest rate on auto loan is expected to go up from 13.75% to 14.25% in April to 14.75 to 15.25%, with effect from July 1.

“There are several factors that are acting against the auto industry. The overall sentiment is low and people are staying away from leveraging on investments. As a result, there might be a slow down in demand in the short term,” says Sumit Bali, CEO, Kotak Mahindra.

“Banks would be forced to increase interest rates by more than 50 basis points as the simultaneous increase in CRR will increase the overall cost of funds,” says an official of a leading bank.

While a Rs 3 lakh Maruti Alto or Hyundai Santro, when financed, will cost you around Rs 5,400 more, a Rs 5 lakh Maruti Swift or Tata Indigo will come at an additional cost of around Rs 9,000 and a Rs 8 lakh Maruti SX4 or Honda City will cost you an additional Rs 14,000.

“The recent move by RBI will adversely impact the auto finance industry. The bank is evaluating the impact and will shortly decide on the quantum that has to be passed on to the customers,” says Rajan Pental, auto finance head, HDFC Bank.

According to Bali, however, if the core economy continues to do well and the GDP grows at 7.5% to 8%, there would be more disposable income in the hands of the consumers and this would revive the sentiments of the buyers. Consequently, the auto industry is expected to grow at 8-10%. The Reserve Bank of India, on Tuesday, increased the repo rate or the key lending rate by half a percentage point to 8.5% and the cash reserve ratio by 25 basis points to 8.75% in two stages. The bank's move is prompted by the need to control inflation that touched a 13-year high of 11.05% for the week ended June11.

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