Drops rate to 8%, others may find it hard to match.
Having grabbed pole position in the automobile loan market, State Bank of India (SBI), the country’s largest bank, today upped the ante by dropping the interest rate by 200 basis points for the first year of the loan.
The special scheme, which SBI had announced in February, provided loans at 10 per cent during the first year with the rate to be reset in the second year. Now, the loans will be available at a fixed rate of 8 per cent during the first year. During the second and third years, borrowers will have to pay 10 per cent. From the fourth year onwards, the rate will be linked to the prevailing interest rate in the automobile loan market.
In a statement, the bank said, the new scheme will be on offer from July 1 to the end of September. The announcement came three days after SBI lowered its benchmark prime lending rate by 50 basis points by 11.75 per cent.
With banks like ICICI Bank, Citibank, HSBC and Standard Chartered moving out of the automobile loan market due to large-scale defaults, the market is now confined to a handful of players. SBI and its associate banks have emerged as the largest player in the market, followed by HDFC Bank, Kotak Mahindra and Axis Bank. At the end of March 2009, SBI accounted for 12 per cent of new automobile sales, up from 10 per cent a year ago.
SBI Chief General Manager P Nandakumaran said the bank wants to increase its market share in the segment by raising monthly loan disbursals to Rs 300 crore this financial year from around Rs 200 crore in 2008-09. The bank has set a target to increase the size of its automobile loan portfolio to around Rs 12,000 crore by the end of March 2010, another SBI official said. The bank’s portfolio rose 36 per cent to Rs 9,713 crore in 2008-09 from Rs 7,149 crore in 2007-08.
“SBI’s latest move will infuse more life into the automobile loan market. It is large enough to support many players and we hope that our market share will not be affected much. Our rates are competitive and whenever the interest rate regime permits, we will pass on the benefits to our customers” Axis Bank Senior Vice-President (retail assets) Sujan Sinha said.
The head of automobile loans in another private bank, however, said that SBI was pushing for a larger presence without having put in place the infrastructure to handle delinquencies. Besides, he said, the interest rate cycle would turn towards the end of FY10 and this might put pressure on SBI.
“It is grappling with a situation where it is a late entrant and still wants to become the biggest player,” he added.
