CHENNAI: Cheaper loans, aggressive options from public sector banks and a general reluctance to use cash for cars has led to an increase in auto financing penetration in passenger vehicles from 75% at the beginning of 2020 to around 80% now.
Auto financiers and dealers say the current buzz is led by the aggression of PSU lenders, which are offering rates lower than private financiers. However the uptick is restricted only to passenger vehicles and not two-wheelers and commercial vehicles.
ICICI Bank head (secured assets) Ravi Narayanan said: “In addition to various favourable macroeconomic factors, the all-time low interest rate is the key element for increased penetration of car finance as it boosts the sale of passenger cars. Additionally, there is a significant rise in demand for used cars for personal mobility. This too is leading to more customers opting for vehicle finance.”
Credit rating agency Icra’s sector head for financial sector ratings, A M Karthik, said there has been an average drop by 100-120bps (100bps = 1 percentage point) in car loan lending rates between January and December 2020. And customers are not only getting cheaper loans but better service as well.
Icra VP Ashish Modani said: “Car financing penetration has improved in the last two quarters across OEMs (original equipment manufacturers) and turnaround time has improved plus rejection rates have come down.”
PSU banks, which are offering car loans at sub-8% right now, have seen a sharp rise in their loan books.
Indian Bank saw a 90% increase in vehicle loans sanctioned in the third quarter compared to the first half of this fiscal. The jump happened in October with 40% of vehicles financed in mid-segment with average loan amount being more than Rs 5 lakh.
Mahindra & Mahindra dealer JS 4Wheel Motor’s Nikunj Sanghi said: “In passenger vehicles, PSU banks now have around 17% share of the market, up from 4-5% before because they are cheaper than NBFCs and offer longer tenure loans.”
NBFCs for their part say they are working on reducing the interest gap with banks. Sundaram Finance national head (auto) N Ramachandran said: “Though there is a 2-3% differential between banks and NBFCs on rates we have worked hard to offer options, which are around half percentage points higher than banks.” As for the cash component, that’s high among first-time buyers, he added.