Public Sector banks to raise Auto loans

Thursday, March 20, 2008 | | |

In a bid to increase their auto loans portfolio, public sector banks are offering lower interest rates and organising special campaigns. This could help revive the demand for auto loans, which has been slowing down, said bank officials.

While the State Bank of India is organising a special car rally for its customers, the Bank of India and the Union Bank of India have reduced the rates on car loans.

Car and commercial vehicle asset segments comprise one-third of total retail loans for the entire banking industry, said a recent report from rating agency Crisil.

Most public sector officials admit that car loans form a minor part of their retail loan portfolio, as private banks and NBFCs hold a major chunk of the market share. The average rate of interest charged by public sector banks for auto loans is 11-12 per cent, depending on the amount and duration of loan.

SBI’s Mumbai zone is organising a special campaign to promote auto loans from March 1 to April 16. The highlight of the campaign is a car rally to be held tentatively on April 20, between Mumbai and Lonavala.

The first prize is an all expense paid week-long trip to Sydney.

All those customers who avail car loans from SBI’s branches in Mumbai and Thane, between March and April 20, would be eligible to participate in the rally, said an official from the bank.

“The share of auto loans in the retail loan portfolio is, as of now, very negligible. We are trying to create interest for our car loans through such campaigns,” he said.

A senior official from the Union Bank of India said that the bank is specially targeting high networth individuals for auto loans, as defaults are usually less in this segment of customers.

Also, this segment would typically change their cars after three years, as they buy new models. So, most of them would prefer to clear off their loans within three years.

“We can also cross-sell other retail to these clients by offering them these additional benefits,” he said.

Mr D. Krishnamurthy, General Manager (Retail), Bank of India, said, “We expect a lot of demand for two-wheelers and small cars.

The reduction in rates will also help to increase the general demand for auto loans. It was also something the Government had asked banks to look into