The effective rate of interest on loans for commercial vehicles has crashed below 8 per cent.
This makes commercial vehicle loans the cheapest in the banking system, with home loans following at 8.25 per cent for five years.
Banks charge between 9 per cent and 18 per cent for commercial vehicle loans, while non-banking finance companies (NBFCs) charge up to 25 per cent.
Banks also pass on subvention benefits to customers, which range from 1 per cent for a three-year loan to around 5 per cent for a one-year loan. In effect, premium segment customers can avail of loans at less than 8 per cent.
In the past year, interest rates on commercial vehicle loans dropped by around 3-4 percentage points. This can be attributed to increased competition in the sector as well as the general downward movement in rates.
In the past two years, banks have taken over the commercial vehicle finance market from NBFCs. ICICI Bank is the largest player, followed by Citibank and HDFC Bank. Among the NBFCs, the big names include Sundaram Finance and Ashok Leyland Finance.
"The rate of interest for premium customers (large fleet operators) is 9-10 per cent. We have tied up with manufacturers, and are passing on subvention benefits to customers," said V Vaidyanathan, general manager and head of retail assets at ICICI Bank.
The bank has a commercial vehicle portfolio of around Rs 3,000 crore, and disburses loans of around Rs 200 crore every month.
HDFC Bank, which entered the segment in 2002, disburses around Rs 100-110 crore a month. "We have made it to the third slot in commercial vehicle financing within a year. We are concentrating on top-end customers," said H Srikrishnan, country head of transaction banking and operations at HDFC Bank. HDFC Bank has tied up with Tata Finance for truck and car financing.
Srikrishnan pointed out that business was still profitable because of the low cost of funds. Vaidyanathan said he expected the market for commercial vehicles to grow 25-30 per cent in the next three years because several infrastructure projects were in the offing.
Banks have also started providing loans on the total cost of vehicles, with margins of 15-35 per cent. Some NBFCs offer only 90 per cent financing on the chassis cost.
Cheap loan
