Auto financiers decision not affected by CRR cut, hike interest rates by 100bps

Few days back the Reserve Bank of India (RBI) on an adhoc basis reduced the cash reserve ratio (CRR) by 50 basis points, but this has not affected the decision of the leading auto finance banks, some of the banks have either hiked the interest rates by 100 bps or are planning to do it shortly. Since August this is the third hike and has resulted in a mounting increase of 250-300 bps in interest rates. This in turn has led to an increase of Rs 150 in the equated monthly installments (EMI) on a loan of Rs 3 lakh for a period of three years.

According to Sumit Bali, CEO, Kotak Mahindra Prime, “The recent reduction in CRR has only made more money available with the bank. As a result banks will become little more aggressive on the lending front. But the fact that the amount released is very low and there is no sign of easing of rates on other fronts, we have increased the auto interest rates by 100 bps”.

While N Ravnarain, auto finance head, ICICI Bank says, “Interest rates are the net impact of several factors like deposit base and operating costs and since the situation continues to be tough, the 100 bps hike was inevitable”. The new rate of interest would be the net rate to the customer and will come into effect from October 10, which would float between 15-15.5% as against the earlier rate of about 14-14.5%.

HDFC Bank, a leading car-financing bank in the country, is also thinking over a hike of 100 bps in auto loans from early next week. “At this juncture where banks are starved of cash, the interest rates could only be revised upward despite the recent cut in CRR,” says Rajan Pental, auto finance head, HDFC Bank. “Though there has been no decision, we might go for a 100 bps hike next week,” he adds.

In view of increase in auto loans by 250-300 bps since the beginning of this fiscal, The EMIs on a loan of Rs 3 lakh have also shown a jump of Rs 450-Rs 500.

While a Mumbai-based analyst says, “At a time when the passenger car industry is struggling to pick up speed, the increase in interest rates would dampen the overall sentiments of the buyers during the festive time”.