Despite a 50 basis point cut in cash reserve ratio (CRR) by the Reserve Bank of India (RBI), leading auto finance banks have either hiked the interest rates by 100 bps or are planning to do it shortly. The hike, which is third in a series since August, has resulted in a cumulative increase of 250-300 bps in interest rates. This led to an increase of Rs 150 in the equated monthly installments (EMI) on a loan of Rs 3 lakh for a period of three years.
?The recent reduction in CRR has only made more money available with the bank. As a result banks will become little more aggressive on the lending front. But the fact that the amount released is very low and there is no sign of easing of rates on other fronts, we have increased the auto interest rates by 100 bps,? says Sumit Bali, CEO, Kotak Mahindra Prime.
?Interest rates are the net impact of several factors like deposit base and operating costs and since the situation continues to be tough, the 100 bps hike was inevitable,? agrees N Ravnarain, auto finance head, ICICI Bank. The new rate of interest, which would be the net rate to the customer and would be effective from October 10, would hover between 15-15.5% as against the earlier rate of about 14-14.5%.
HDFC Bank, which is the leading car-financing bank in the country, is also mulling a hike of 100 bps in auto loans from early next week. ?At this juncture where banks are starved of cash, the interest rates could only be revised upward despite the recent cut in CRR,? says Rajan Pental, auto finance head, HDFC Bank. ?Though there has been no decision, we might go for a 100 bps hike next week,? he adds.
Considering that the auto loans have increased by 250-300 bps since the beginning of this fiscal, there has been a jump of Rs 450-Rs 500 in the EMIs on a loan of Rs 3 lakh.
?At a time when the passenger car industry is struggling to pick up speed, the increase in interest rates would dampen the overall sentiments of the buyers during the festive time,? says a Mumbai-based analyst.