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Rising car sales signal economy on right track

Monday, 18 August 2014 - 5:21am IST | Place: Mumbai | Agency: dna

After a lull of two years, car sales are showing signs of revival. Car loans, too, are picking up as sentiments in the economy turn around. While car companies go for special launches, banks are marketing their loans aggressively with an eye on bigger market share.

As per Society of Indian Automobile Manufacturers (SIAM) data, sales grew 5.04% in July this year, for the third month in succession. The industry body has hence raised the growth projection for the entire year to 5%.

Are sales rising because prices are down?
Not really. In fact, car prices were expected to go up after June 30, but this didn't happen. Which means sales are increasing more because of prices not going up than going down.

Why didn't prices go up as expected?
The reduction in excise duty announced by the UPA government was due to expire on June 30. So, prices were expected to go up after June 30. With the Narendra Modi government extending the duty benefits till the end of December this year, prices remain where they are.

Will new models be launched?
With the festival season ahead, car manufacturers have already announced the launch of new models. They 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 will see higher growth in the coming months," Vishnu Mathur, director general, SIAM, said recently.

Which banks are seeing a rise in loans?
Car-loan books of most leading retail lenders like State Bank of India, ICICI Bank, Axis Bank and HDFC Bank are rising -- both sequentially and year-on-year. SBI chairman Arundhati Bhattacharya said after the quarterly 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."

What's the kind of loan growth?
SBI has the largest car-loan portfolio of Rs 28,202 crore. It grew by Rs 277 crore over the 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. This grew by Rs 263.6 crore over the preceding quarter and about Rs 3,221.5 crore in the year-ago period. HDFC Bank saw a 14 per cent rise (YoY?) in its retail loans.

Will loan growth continue?
Chanda Kochhar, CEO and MD, ICCI Bank, said in a concall after the bank's 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 requirement and then move to capital expenditure."


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