Column : Banks propelling auto

Written by Yogima Seth | Updated: Feb 28 2009, 05:42am hrs
SBIs recent move to reduce the interest on auto loans by 1.5 percentage points to 10% has sent ripples across the banking industry with other nationalised banks also falling in line to woo prospective car buyers.

This competition can only be a good thing. All these banks have plenty of liquidity in their coffers after RBI announced a series of rate cuts over the last few months. Its time the liquidity translated into affordable lending. While this means an expansion of product portfolio for nationalised banks, it also means more business for auto manufacturers who are now tying up aggressively with nationalised banks to tide over the slump in demand.

Leading industry player, Maruti Suzuki India, has entered into an association with the Oriental Bank of Commerce, Andhra Bank and Bank of Maharashtra, over and above its already existing association with SBI and its six associate banks. Hyundai Motor India has signed a memorandum of understanding with Punjab National Bank and Syndicate Bank, and Tata Motors is eyeing the widespread network of Central Bank of India and Corporation Bank to fund its passenger vehicles.

This association will invariably extend the reach of auto manufacturers to far off places, especially rural and semi-urban India, where private lending banks have almost negligible presence. Moreover, the credibility that is still associated with nationalised banks is another factor working in favour of these banks.

Therefore, it is not surprising to note that these banks are offering loans in the range of 10% to 12.5% rate of interest vis--vis around 13% being offered by private players in order to cash in on the opportunity. Not just this, they are financing up to 85% of the on-road price of the vehicle as against 60-65% being done by the existing private banks.

While it is still to be seen whether this association provides the much needed fillip to the sales of passenger cars in the country, it is surely a cause of concern for private players like HDFC Bank, ICICI Bank and Kotak Mahindra Prime who need to fasten their seat belts before they fall way behind in the race.