Nbfcs Set To Pare Interest Rates On Car Loans

The fall in demand has a wider implication: for instance, in the US, a fall in car demand is seen as a pointer to an emerging recession. In fact, Reserve Bank, in its annual report, has warned of an impending recession if interest rates do not come down.

Companies like Apple Industries and Kotak Mahindra are now thinking of cutting the rate of interest at which car finance is being offered. At present, companies offer a flat rate of 14 per cent a year for car finance, and this is likely to be brought down by 1 percentage point soon.

 

Companies attribute the impending cut to a general lowering of cost of funds in the market. The cost of funds has gone down for them, they say, owing to the well-rated firms having lower statutory liquidity ratio (SLR) requirements from the earlier levels of 15 per cent to 12.5 per cent.

The demand (for cars) is coming down to some extent owing to the liquidity crunch. Moreover, the demand for cars in the Indian market will come largely from the non-premium segment, said an analyst tracking the automobile industry.

While the figures for the first quarter of the year show an increase in production, there have been successive cuts in the production of Maruti Esteem cars in the past two to three months, according to sources.

The waiting period for Maruti 800 cars, too, has come down. While last year, there was a long waiting period (as long as one year) and a rush for bookings, this year, the waiting period has come down, said one financier.

With the slashing of rates on car finance, NBFCs feel they will be able to compete better with bank rates. While Citibank and Bank of America offer flat rates of between 12 per cent and 13 per cent, 13 per cent and 14.5 per cent a year.