State Bank of India (SBI) has surprised competitors by slashing interest rates on loans for new cars.
SBI will offer new car loans at a fixed rate of 10% for one year. It is 1.75% lower than the prevailing rate offered by market leader, HDFC Bank. After one year, rates will be linked to the bank’s existing prime lending rate (PLR). The borrower will be charged 75 basis points (bps) below PLR for a three-year loan of Rs 7.5 lakh and above. Loans below Rs 7.5 lakh will carry an interest rate of 50 bps below PLR.
However there is no cut in interest rates by HDFC Bank. The 10% offer is the lowest in the industry, with most commercial banks offering car loans in the 11.5-13% range. Up until now, SBI offered new car loans at 11.5-12.5%. The new scheme’s success would depend on how the SBI promotes this scheme among auto dealers.
The concessional 10% new auto loan scheme announced by SBI on Friday will be
- applicable for new cars only.
- available from February 23 to May 31, 2009 and
- applicable for all types for passenger cars.
Last month, the bank has decided to freeze interest rates on home loans at 8% for one year.
SBI expects the new auto loan scheme to generate substantial incremental demand for passenger cars. SBI’s auto loan portfolio is about Rs 9,000 crore against HDFC Bank’s outstandings of 13,000 crore.
According to the Society of Indian Automobile Manufacturers, overall automobile production in January 2009 fell by 11.92% over the same month last year. However, it is more than December 2008. January sales are generally more than December sales as customers wait for new models in January, which fetch a better value in the used car market. The cumulative production data for April 2008-January 2009 shows growth of 2.32% over April 2007-January 2008. With lower prices and huge discounts, January 2009 sales registered more than December 2008 sales, but they were not enough to make the year-on-year growth positive.
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