Car finance to cost more

THE CREDIT POLICY EFFECT...

After a rise of up to Rs 22,000 in car prices last week, prospective buyers are in for another jolt. Leading banks like ICICI Bank, HDFC Bank, UTI Bank, Centurion Bank of Punjab and Yes Bank are all set to increase the interest rate on automobile loans by 0.5-1 percentage point.

While Yes Bank has already raised its rate by half a percentage point to 14 per cent, ICICI Bank, which has a 40 per cent share of the auto loan business, has decided to increase car loan rates by one percentage point.

Once ICICI Bank, the market leader, announces the new rates, other banks too are likely to revise their automobile loan rates.

"There is pressure on rates and we are reviewing them. In today's scenario, it can only go up," said Neeraj Jha of HDFC Bank. Added Centurion Bank of Punjab head of retail Vivek Vig, "We are evaluating the market movement and will follow any increase."

However, after the recent government directive to hold interest rates at their current level, public sector banks are unlikely to increase their rates.

Almost 75 per cent of car purchases in the country are financed by banks and automobile finance companies. Car companies said the impact of the interest rate hike would be marginal given that a one percentage point hike raised the equated monthly instalment of a Rs 1-lakh loan by only Rs 50.