Auto companies do not see any significant spurt in demand despite a rate cut announced by India’s largest bank State Bank of India (SBI) yesterday, which will be a benchmark for other banks.
The SBI rate cut comes at a time when the government has taken several measures, including a substantial cut in petrol and diesel prices. These measures have resulted in lowering of inflation rate, essentially meaning putting more money into the common man’s pocket, which may fuel demand.
But auto companies, including Maruti Suzuki, Mahindra & Mahindra (M&M), Bajaj Auto, Ashok Leyland and Hyundai Motors, feel that more action is required to help the sector tide over the crisis of a slowing demand.
Mayank Pareek, executive officer (marketing and sales), Maruti Suzuki, said, “For the entire (current) year, at best we’ll maintain a flat growth, selling as many cars as we sold in the previous year. It’s difficult to make up for the decline in sales in the earlier 9 months just because car loans have become cheaper.”
Pawan Goenka, president (automotive sector), M&M, said, “After seeing the fineprint of the SBI announcement, it is clear that the interest rate will be valid only for one year and will eventually be set to the PLR again. It is certainly a very positive move, which will help in demand spurt, but it is not as good as it looks.”
Even more than a month after the Reserve Bank of India (RBI) cut key lending and borrowing rates, most of the banks have refrained from passing on the benefit to customers, at least in the auto sector on fear of loans turning into bad assets.
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K Sridharan, CFO, Ashok Leyland, said, “We are very disappointed by the cut as the commercial vehicles industry has been completely ignored. The current quarter will be subdued when compared to the corresponding quarter last year. We are not expecting much growth in the coming months.”
Meanwhile, the two-wheeler industry, an extremely price conscious segment, is also expected to post a dismal growth in this quarter as this segment too was ignored by the cut.
S Sridhar, CEO (two-wheelers), Bajaj Auto, said, “The SBI move to lower car loan rates is a welcome move. Perhaps, in the next three-six month, NBFC’s and other banks, which have so far kept away from offering vehicle loans, will come back to this business. Then the two-wheeler industry will benefit. But as of now, we are far away from enjoying the benefits.”
In its stimulus package, the government had cut the Cenvat rate by 4 per cent, which resulted in a direct cut of a maximum of 3.5 per cent in Excise duty on all vehicles.
After passing on the benefit to customers, manufacturers voluntarily raised prices in January, nullifying the benefit.