Car loans zip into fast lane as sentiment improves

Car loans are picking up as sentiments in the economy turn around.

Car loan books of most leading retail lenders including State Bank of India, ICICI Bank, Axis Bank and HDFC Bank are rising both sequentially and year on year.

While automakers are going for more car launches, banks are marketing their loans aggressively with an eye on bigger market share.

After a lull of two years, car sales have started showing signs of revival as they grew for third straight month in July.

Most carmakers reported a healthy growth in wholesale dispatches for the last two months in anticipation of a price hike from July.

Prices of cars were expected to go up as the reduction in excise duty announced by the previous government in the interim budget in February, was due for an expiry on June 30.

The Narendra Modi government, however, extended the duty benefits till the end of December this year.

Arundhati Bhattacharya, chairman of State Bank of India, said after the June quarter results, "Car loans are picking up. In fact, in July, we are seeing a better growth than the previous month. Retail growth will predominate our loan growth until capex picks up after a few quarters."

SBI has the largest car loan portfolio of Rs 28,202 crore, which grew by Rs 277 crore over previous quarter and about Rs 1,791 crore over the corresponding period a year ago.

ICICI Bank has the second-largest portfolio at Rs 27,851.6 crore, which grew by Rs 263.6 crore over the preceding quarter and about Rs 3,221.5 crore over the year-ago period.

Chanda Kochhar, chief executive officer and managing director, ICCI Bank, said in a media concall after the banks quarterly results announcement, "Growth in retail loans will continue to be in the excess of 20% for the rest of the year, loans to companies will start from working capital requirements and then move to capital expenditure."

As per the recent data released by Society of Indian Automobile Manufacturers (SIAM), car sales grew 5.04% in July this year, a third straight month of growth, prompting the industry body to raise the growth projection for the fiscal.

Car manufacturers, meanwhile, expect sales to rise with the revival in sentiments.

"The negative sentiments have gone. People are coming back to showrooms. As the economy revives we are going to see higher growth in the coming months," Vishnu Mathur, director general, SIAM, told reporters recently.

With the upcoming festival season, manufacturers have lined up model launches. The industry expects at least a single-digit growth by the end of this year. "We have grown by 2.89%. If the trend continues we hope that we could end the year with a growth of anything between 5% and 10%," said Mathur.

HDFC Bank also saw a 14% rise in its retail loans.

Paresh Sukthankar, deputy managing director, HDFC Bank, said, "In terms of our actual disbursements, there has been a pick up in a couple of retail loan categories in the last quarter or so. If we look at actual disbursements on a sequential basis, there is a slight pickup in auto loans too. We are all looking forward to the economy reviving, and expect growth to come back in a while, but not immediately.

Sales of Maruti Suzuki, the biggest carmaker, rose 10.3% in the April-June quarter, led by strong performance of its small, entry-level cars. The company told analysts that its sales in the urban market has started to revive and grew almost 12% for the quarter, while rural sales continued to remain strong with 26% growth.

Talking about the overall industry sales, it said the demand is more sentiment-driven.

"Enquiries have gone up in the past few months. However, this is more of a sentiment-driven demand. Increase in investments, job creation, festival season -- all this will add to the momentum. If all this happens we will see better next year," said a Maruti Suzuki executive in an earnings conference call. The company improved its market share by 3.6% for the June quarter to 44% compared with the same period last year.