Auto loans may not get a rate cut for now
By Vaibhav Aggarwal
Nov 7, 2008
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Even though the Finance Ministry has tried to persuade banks on rate cut and RBI has been cutting down on its lending rate, auto loans rates seem to stay unaffected.

The three leading auto financing companies, HDFC Bank, ICICI and Kotak Mahindra, are planning to keep their auto loan rates untouched for now. They are following a wait and watch policy due to the instability in the call money market.

Call money is the rate at which banks lend to each other for short-term requirements. It had reached to as high as 23% in September and since then various steps have been taken to ease the liquidity which has clam down this rate. But it is still too high and thus the financers are not planning to cut the rates for now.

Sumit Bali, CEO of Kotak Mahindra, said: "Call money rates are volatile, swinging between 7% and 17%. Unless it settles down to 5-6%, which is the normal band, we would not like to go for an interest rate cut. We will wait and watch for the next 7-10 days before taking a call."

HDFC's Executive Vice-President and head (auto loans) Ashok Khanna: "There is no rate cut planned. It will take some time." ICICI vehicle loans head NR Narayanan said: "As of now we have not yet decided on anything."

The auto industry where around 80 to 90 percent of all passenger vehicles sold are financed has been hit hard by the current financial crunch. Auto dealers are suffering to a great extend as there are no loans available for either the end consumer or working capital purposes.

The top financing companies have been cutting down on their auto loans following which the sales figures have reported a negative growth even in the festive month.

However the public banks have not been as affected as the private lenders in auto loan segment. They have been less hit by the financial turmoil and now they are encouraged by the some top vehicle makers to extend the loans. As Tata Motors is considering a tie-up with SBI for Nano, GM is "discussing with PSU banks for financing arrangements", said GM India V-P P Balendran.


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