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Car firms, banks drive together

Banks and car ales will join hands to provide loans at lower interest rates

Apnaloan.com Research Bureau

10 Aug 2007

New Delhi: Call it the rate hike effect. Anticipating the fall in auto finance and sales due to rising interest rates, auto firms, dealers and financiers have joined hands to provide loan at a lower rate in some caes and value-added services in others, to retain prospective buyers.

While Hyundai Motors India Ltd (HMIL) has tied up with HDFC Bank and ICICI Bank to offer loan at 8.99% on Santro models against the existing rates of 15.25% of HDFC Bank and 15.50% of ICICI Bank, Honda Siel Cars India Ltd (HSCI) is in talks with nationalised banks that offer a lower rate as compared to other auto financiers in the market.

\"We are talking to many nationalised banks for an alliance as they are willing to offer loans at an attractive rate due to their limited presence in auto finance segment,\" a Honda spokesperson said.

This means a win-win situation for all. While, customers can save up to Rs 1,000 per month on their EMI on a loan of Rs 3 lakh for a period of three years, auto manufacturers may see a spurt in sales and auto financiers can expect more customers walking in afresh.

This despite the fact that the trio manufacturers, dealers and auto financiers will have to put in around Rs 10,000 each to compensate for the lower interest rates. While the banks are doing this by lowering thier interest rate by 100 basis point, dealers will do away with their commission and the maufacturers may let go of free insurance schemes during the offer period.

"The move will enable manufacturers and dealers to liquidate their stocks along with enhancing the number of buyers at their outlet," says Rajan Pental, senior vice-president HDFC Bank, adding that this in turn will mean more business to the bank.

Adds N Ravinarain, group business head (car and commercial loan), ICICI Bank: "It will help boost the sentiments of individuals who had deferred their decision to buy a car due to the rising interest rates since December."

While, there has been no announcement from other auto manufacturers so far, sources say that auto giants like Maruti Udyog Ltd (MUL) and Tata Motors are also in talks with banking majors for similar tie-ups.

(Courtesy: TOI)