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Not long ago, public sector banks (PSBs) were the toast of car-buyers, but with the RBI tinkering with the key rates, private banks which offer fixed EMIs are back in favour.
Even last year, public sector banks offered a base rate of around 8 per cent, and with a spread for vehicle loans at an additional 2-3 per cent, vehicle loans were offered at around 10-11 per cent.
With the base rate now at around 10.5 per cent, these loans come at around 13 per cent. Compare this to the 12-12.5 per cent fixed rate that a private bank offers, which draws customers despite higher processing fees.
“In previous years, public sector banks had more takers because their interest rates were low, despite having floating rates,” Mr K Raju, who owns a dealership of one of the largest selling cars in India, told Business Line .
Other dealers point out that private banks are also favoured because of their lesser turnaround time (sanctioning time). “Public sector banks take up to four days to sanction loans now, while private sector banks clear the papers in 48 hours,” said another dealer.
Rack rate
A banking source said that banks usually fix a rack rate and if the dealer is able to get the customer to agree to a higher rate, the difference is passed on to the dealer.
Denying that there has been de-growth in vehicle loan disbursements among PSBs, Ms Shubhalakshmi Panse, Executive Director, Vijaya Bank, said that the portfolio has been growing. “Despite consecutive rate hikes by the RBI, we have not passed on the entire rate hake to ensure that we are competitive,” she explained.
According to her, it was, in fact, the manufacturers who give a line of credit to dealers, and in turn to customers, and also the aggressive NBFCs who were frontrunners in low interest rate vehicle loan financing.
PSBs are also considering a reduction in rate to attract customers, said a general manager of another public sector bank. “Most public sector banks are considering dropping their spread,” he added. With festivals approaching, they might even reduce processing charges, he said.
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