Co-op banks explore 2-wheeler loan mart

Co-operative banks in Gujarat have made a silent entry into the two-wheeler finance mart, adding to the competition in this segment.

At present, urban co-operative banks based in Ahmedabad such as Kalupur Co-operative Commercial Bank and Nutan Nagrik Commercial Bank are offering two-wheeler loans on a daily-reducing basis at 11 per cent and 12 per cent, respectively.

The rates are much lower compared to the private banks. Most of the nationalised banks and various other financing institutions offer loans at rates of 11 per cent to 13 per cent.

Ashok Pandal, branch manager, Kalupur Commercial Co-operative Bank, Drive-in branch, said, "Although we are offering two wheeler loans at the lowest rates, customers prefer availing loans from privates banks as we need a guarantor. Most of the customer are averse to this."

"We give loans to customers only after a thorough verification of the documents, while private banks are not so strict," Pandal said.

Many private banks offer two-wheeler finance at a flat rate of 7.25 per cent for 12 months, 9.5 per cent for 24 months and 10.25 per cent for 36 months.

Many non-banking financial companies offer the loans at a flat rate as high as 12 per cent, while regional private financiers offer loans at a flat rate of 15 per cent or even more than that.

Customers are forced to pay additional and hidden charges while availing loans from private banks, borrowers said. The charges include processing fees of two per cent of the loan amount.

Some banks do not allow pre payment for the first six months. The customer needs to pay additional charges if he opts to pre pay the loan after six months. Private players often take an equated monthly installment (EMI) in advance to reduce the loan amount and interest rate.

Private banks keep their interest rates higher because they make provisions for bad debts, said an official of a private bank.

In spite of the high interest rates, private players have a 60 per cent share in the two-wheeler loan market because of their aggressive marketing and hassle-free process, a leading two-wheeler dealer in the city said.