Auto lenders set to revise interest rates

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New Delhi: Leading auto financiers are set to revise interest rates on auto loans, following the reduction in cash reserve ratio, repo rate and reverse repo rate by the Reserve Bank of India on January 2.

While Kotak Mahindra Prime will introduce new rates, which will be lower by 50 basis points (bps), with effect from Wednesday, HDFC Bank is reviewing the situation and is expected to announce new rates soon. ICICI Bank has already lowered the floating rate of interest by 50 bps and is now offering loans at 14.5%.

"We will now offer car loans at around 14% as against 14.5% earlier and this will be effective from tomorrow," said Sumit Bali, chief executive officer, Kotak Mahindra Prime. "Liquidity is there and interest rates have softened, but the fact that sentiments still continue to be low, though they are definitely better than what it was in November, will not boost sales in a big way. Marginal improvement will surely happen," he noted. On December 15, the company had lowered interest rates by 50 bps, for the first time in 2008, following RBI's reduction in interest rates. Interest rates on auto loans were on an upswing in 2008, and the net increase till date has been 150 basis points vis-à-vis January last year. This means an addition of Rs 225 in the EMI on a loan of Rs 3 lakh.

"There will certainly be some reduction in interest rates but the quantum will be decided only by next week as the portfolio has been under stress due to an increase in the number of defaults," said Rajan Pental, head (auto loans), HDFC Bank.

According to Pental, negative sentiments in the industry had hit business by almost 10% in 2008. "General sentiments are low, more so of the salaried class, who are living under the fear of job uncertainty. This, coupled with negative sentiments that are bombarded into the minds of potential buyers through the media, is keeping sales low," he added.