Car companies tie up with govt banks to boost sales

Taking benefit of falling interest rates, automobile companies, which have been hit hard by a severe slump in demand in the last six to seven months, are forging alliances with public sector banks (PSBs) to arrange for cheaper finance to push sales.

Barring State Bank of India, PSBs, which have less than 20 per cent share in the auto finance business, are looking at these alliances to grab a bigger share of the pie.

SBI, along with HDFC Bank, Axis Bank, ICICI Bank and Kotak Mahindra Bank account for 75 per cent of the market share.

Banks, which have tied up recently with auto makers include Punjab National Bank (PNB) and Syndicate Bank with Hyundai Motors, Andhra Bank and Bank of Baroda with General Motors, Central Bank of India and Corporation Bank with Tata Motors, Punjab and Sind Bank and Corporation Bank with Maruti Suzuki.

Apart from lower interest rates, some of the deals also allow for lower margin money. In addition to the retail tie-ups, many auto dealers have signed up with country’s largest lender SBI.

“The rates offered by public sector banks are much more attractive than the ones offered by private sector players. In addition, these banks have a wider reach across the country. The share of PSU banks in our sales has risen to 30 per cent from 18 per cent earlier,” said Hyundai Senior Vice-president (marketing and sales) Arvind Saxena.

According to auto makers, the processing time required for a vehicle loan by a public sector bank has also come down.

“Private sector banks had a market share of 70 per cent while PSU banks had a share of about 10-15 per cent and the balance was in cash. PSUs’ share has gone up to 35-40 per cent as of today. Speedier processing of loans by PSU banks has also helped them gain market share besides lower interest rates,” said General Motors India Director and V-P (corporate affairs) P Balendran.

Maruti Suzuki, a leader in the passenger car segment, sold 70,625 vehicles in February, an increase of 19 per cent over same period last year. This could perhaps be an indicator of change in the business sentiment, said auto analyst with equity broking house.

Public sector banks (PSB) see opportunity in filling the gap in the financing market ever since private banks reduced their auto finance portfolio drastically. PSBs have the advantage of a huge network especially in the rural sector which has not been much impacted by slowdown.

However, banks are lending caution while scrutinising a loan application.

“Even if tie-ups are in place, it does not mean that branches would start work is gusto. They will make doubly sure that credit proposal is going to be sound to avoid for containing increase in incidence of bad loans”, said credit head of small public sector bank.