NBFCs face tough competition from PSBs, reduces auto loan rates

Recently the country’s largest lender State Bank of India (SBI) has launched SBI Ezee Car Loan Scheme under which it is offering 8 per cent for the first year and 10 per cent for the second and third year. Other public sector banks (PSBs) are signing agreements with auto companies to provide vehicle loans at reasonable rates. Seeing the competition from PSBs the Non-Banking Finance Companies (NBFCs) have decided to lower their rates on vehicle finance. Industry officials over the past few month NBFCs have brought down interest rates by 100-200 basis points or one-two percentage points.

Meanwhile the vehicle financing companies Tata Motors and Bajaj are also offering interest financial assistance schemes or cash-back up to a certain amount of the disbursed loan in case the customer does not default on monthly installments. According to industry officials after the revision of rates by NBFCs the gap between them and private financiers has reduced to 100-150 basis points from the 200-300 basis points.

Mr Ravi Todi, Joint Managing Director at Magma Fincorp said, “Car financing is difficult as competition from public sector banks is increasing. Our rates are now between 12 and 14 per cent”.

Mr Ramesh Iyer, Managing Director, Mahindra Finance informed, “We have reduced interest rates between 100 and 200 basis points from May-end to June. Earlier our rates were 14-15 per cent. Now they are 12.50-13 per cent. Our own ability to raise money has been quite good”.

Official at dealerships told in the last two-three months interest rates of the vehicle financing companies of Tata Motors have also reduced up to 300 basis points.

But a spokesperson for Tata Motors Finance did not disclosed about the reduction in the interest rates in spite of repeated queries from Business Line. But dealership sources informed that the current rates are now 12.50 per cent as against 15-16 per cent earlier.

An official working with Tata Motors Finance at one of the dealerships informed, “We are running a scheme under which we give back customer 2 per cent of the disbursed loan amount back if there is no default on a single equated monthly installment in the past three years. On four years, the cash-back is 2.5 per cent and five years 3 per cent”.

Mr Milind Bade, General Manager (Marketing) at Bajaj Auto, said it has been for a week now its financing company is offering an interest subvention of 6 per cent on its motorcycle XCD. Earlier in April, it had launched a scheme of 10 per cent rate on models such as Pulsar 150 and 180 cc for almost two months.

He added, “We come out with select schemes on certain products. It helps to pre-pone sales and a competitive rate acts as an enabler”.