After credit cards and home loans, banks are now targeting personal and auto loans for refinancing. HDFC Bank has taken the lead by launching a balance transfer products for heavy commercial vehicles (HCVs), light commercial vehicles (LCVs) and other auto loans. ICICI Bank has also started offering balance transfer facility in personal and auto loans.
Some foreign and private banks have securitised their auto loan portfolios, but refinancing or balance transfer of auto loans is a new phenomenon. This is expected to kick off a price war among major players in the market. Non banking finance companies (NBFCs) are the major players in the HCV and LCV markets.
"The balance transfer products have been introduced for LCV and HCV segments. We plan to launch the product for auto loans too. We are taking over only those loans which have a minimum 50 per cent residual time left to be completed or 18 months. The refinance rates are the same as the new car loans," H Srikrishnan, country head (transaction banking & operations), HDFC Bank, said.
ICICI Bank is taking over personal loans from other banks. The bank waives processing fees for these loans. This enables customers to shift even if they have to pay prepayment fees to get out of the old loans. It has refinanced a few auto loans -- originally financed by NBFCs -- in South. However, for refinancing auto loans, ICICI Bank charges interest rates as applicable to second-hand car loans.
For auto loan refinancing, the banks are required to change the hypothecation from the current financier to themselves.
"HDFC Bank had entered the HCV, LCV market around three months back. The auto loan portfolio of the bank has doubled from Rs 300 crore last year," said Srikrishnan. The bank looks at the payment record, future business potential and the condition of vehicles before the loan is sanctioned.
HDFC Bank has an exposure to the LCV, HCV markets through two routes-- own franchise and securitisation. "Currently 60 to 70 per cent of the portfolio is through securitisation, with the remaining being booked by the bank through its own franchise. In the next six months, we are looking at changing this portfolio to 50:50 through the introduction of this route," Srikrishnan said.
In credit cards, banks normally offer a balance transfer payment at 1.5 per cent a month compared to 2.99 per cent. Home loans are another front were banks are enticing existing customers from a higher rate of interest to new loans with lower rate.
Even with a prepayment clause which the customer may have to pay, customers are able to reduce the interest outgo by refinancing their home loans.
