India's leading private lender, HDFC Bank seems to follow the industry leader SBI in announcing the interest rate cut in its various loan portfolios. The Bank has slashed the interest rates on personal loans and commercial vehicles from February 23rd.
Personal loan rates have been reduced by 75 to 100 basis points from the existing rate of 17% to 17.5% while interest rate on commercial vehicle loans and two-wheeler loans have declined by 125 basis points to 13.5% to14% and 150 basis points to 24% to 24.5% respectively.
On the other hand, PSU banks offer auto loans that are relatively cheaper than the interest rates offered by private banks. Recently SBI has also frozen its car loan rates at 10% for one year.
However banks in the industry do not seem to follow the industry leader. A private sector banker said, "It seems the PSU banks are under pressure from the government. They are also not doing well in the small and medium enterprise segment. That is why they are aggressively pricing their auto loan products."
Moreover some bankers feel that excising such aggressive pricing could also affect the profitability of the bank. "When you price a product, you have to include the cost fund, operating cost and the losses you are likely to make. But what is happening is that while expanding their auto loan books banks are not looking into this nitty-gritty," said another banker from a private sector bank.
"This would mean you would not make any money from the business, as auto loans have higher operating cost and cost of servicing the segment is very high," he added.
Nevertheless these bankers clarified that disapproval of aggressive pricing does not mean that banks should not reduce the interest rates. "Rates have definitely eased and they are likely to come down further slowly. The government and the Reserve Bank of India also have much room now that the inflation has come down significantly," said a banker.
Further he said, "As the rates come down in the money market, it will reflect on all loans, including home and auto loans."
Recently due to the easing monetary policy, interest rates in the market have come down significantly.