Now, SBI offers new car loan at 10%

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Soon after the State Bank of India came out with its one-year, 8%-interest rate home loans that created a flutter, it has now announced a new scheme for car loans, offering interest rates at 10%.

Car loans at 10% from SBI

Under the new scheme called ‘SBI Car Loan’, the bank has freezed interest rates on new car loans for a period of one year at 10% per annum. The interest rate would be re-set after the freeze period at the applicable card rate contracted as on the date of sanction under the respective new car loan schemes. The scheme offers the longest repayment period of up to 84 months without any advance EMI.

Also, SBI calculates the interest on daily outstanding balance, which reduces the interest burden on the borrower as against the monthly outstanding balance or flat-rate basis as is charged by some other banks.

The new scheme is on offer for a limited period — it is valid between February 23, 2009 and May 31, 2009, across India and the interest rate will be reset on these loans at the contracted rate after June 1, 2010.



Industry reacts

Maruti said the rate cut by SBI is very positive as its exposure to PSU banks is 60%, of which SBI accounts for half. Hyundai, on the other hand, said its exposure to PSU banks is up to 30% and SBI accounts for 15%.

Sources in Punjab National Bank (PNB), the second-largest public sector bank, said the bank plans to respond to the SBI offer and is evaluating its impact as of now. PNB had earlier entered into a pact with Hyundai Motor India Limited for auto loans. The pact was made to accelerate car loan disbursals for Hyundai vehicles and also offer competitive auto loan schemes for Hyundai's potential customers across India.

KC Chakrabarty, PNB’s CMD, said having a good loan delivery mechanism is more important for customers than just reducing rates. "Even as the cost of money is coming down, interest rate reduction should be across all these segments, across all the borrowers,” Chakrabarty said, adding that a selective intermediation was not efficient.

“Whether we offer car loans at 11% or SBI does it at 10%, it doesn't change the customer's preference if our delivery mechanism is more effective. At this level, a 1% differential in interest rates does not change the desire of the customer to go to the bank."

Light at the end of tunnel

Automobile sales in January dropped 7.45% compared to the same month in 2008. Despite the decline, it was the first indication that the fall in sales, which occurred between October-December 2008, could be bottoming out and there are hopes for a recovery in February or March. Auto sales dipped in the double-digits, ranging between 14% and 18% between October and December over the last year.

Passenger vehicle sales in January dipped by a 6.88% to 1,37,284 units. In December 2008, car sales dipped by about 14% year on year. The improvement in January sales came on the back of many measures: the stimulus package announced in December, which included an excise duty cut of 4% on cars, the discounts offered by car companies, the sixth pay commission, and new model launches like the A-Star, which boosted sales of market leader Maruti Suzuki in January.

Maruti, which controls over 50% of the domestic market share, grew by 6% in January.

With the announcement of SBI new car loan at 10%, the auto industry might have just got the shot in the arm it desperately wanted.