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Banks to hike interest rates on auto loans

Some of the bigger players in the car loan segment are likely to hike interest rates by next month

Apnaloan.com Research Bureau

30 Apr 2008

Customers looking for a car loan will have to brace themselves with another hike in interest rates. Some of the bigger players in the car loan segment are likely to hike interest rates by next month.

Interest rates in this segment are likely to move up by at least 50 basis points (bps) or 0.5 per cent by next month. HDFC Bank, Kotak Mahindra and Axis Bank are on course to revise car loan rates upward. Other banks are likely to follow suit. Such a move is likely to impact both car and two-wheeler loans.

Margins on new car loans are now close to 75-100 basis points. A 75 bps hike in the Cash Credit Ratio has further shrunk margins on all loans by close to 10 bps.

HDFC Bank is likely to increase its rates in the next few days by 50 bps. For 31-48 month loan tenure in the A&B segment, the new interest rate is likely to be close to 14.75 per cent. For the premium segment, interest rates would be close to 14.25 per cent. The bank is also hiking its rates for two-wheelers by close to 100 bps in major metros.

Axis Bank is likely to raise interest rates by 50 bps by mid-May. The bank had entered this segment last year and had priced its loan aggressively. It now wants to align its rates more closely with the market.

Kotak Mahindra will raise loan rates by 25 bps from May 1 on both new and old cars. As reported by Economic Times, Kotak Mahindra Prime's CEO, Sumit Bali said, "For a three-year loan of Rs. 3 lakh, the EMI for a customer would go up only by Rs. 50, post-hike. I don't think that interest rate is the only thing which determines car sales. The industry would grow by 8-9 per cent this year against 12 per cent last year."

Others like ICICI Bank are likely to adopt a wait-and-watch policy during the next couple of weeks.