At present, over 70 per cent cars in the country are financed
Interest rates on auto loans are set to go up 25-50 basis points from next week following the 25 basis points hike in repo and reverse repo rates by the Reserve Bank of India (RBI).
Car buyers will now have to shell out an additional Rs 100 as EMI on a Rs 4,00,000 loan for a period of 36 months.
This will be the second hike in interest rates in the current financial year. Banks had hiked rates by 25 basis points around April — the existing rate of interest on automobiles varies between 9.5 per cent and 12.5 per cent.
At present, over 70 per cent cars in the country are financed and the average ticket size of a car loan is Rs 3 lakh for a period of three years.
According to latest sales numbers, total passenger vehicle sales in the country went up 26.8 per cent to 1,76,920 units in June as compared to 1,39,490 units in June 2009.
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“We will review interest rates on auto loans next week and are looking at raising it by at least 25 basis points, which will be a marginal increase over the exiting rates of 9.75 per cent,” Sumit Bali, chief executive officer, Kotak Mahindra Prime, said.
According to Manju Srivatsa, president (retail), Axis Bank, interest rates depend on multiple factors and there is scope for another hike from next week. “The bank has already taken a hike of 25-50 basis points two months ago and this will be the second hike in four months of the ongoing financial year.”
Analysts, however, feel the current hike is minuscule and will not impact the overall sentiment in the market. In other words, the demand for automobiles will continue, although the growth curve may taper down a bit.
“Even if banks decide to hike interest rates after the RBI decision, it will not impact the purchasing decision of Indian car buyers. However, we may see overall growth moderating to 15-18 per cent as against over 30 per cent that we have been seeing since January this year, as the pent-up demand has been met with several new launches in the passenger car category in the past,” said VG Ramakrishnan, senior director (automotive practice), Frost &Sullivan.