Banks hold rate hikes, offer sops to spur car loans

With car sales growth down to its slowest pace in 24 months in May, banks have started offering lucrative schemes and incentives to keep their car loan portfolios strong. Sales have slowed in the first two months of this fiscal on account of rising inflation, increasing fuel prices and expensive car loans, with the May sales growth being reduced to just a single digit at 7%. Sales were robust till April when the total vehicle loans grew 24% year on year to 80,164 crore. However, now analysts said sales slump may continue for many months ahead. To maintain a healthy momentum, different banks are offering various schemes and incentives to their customers. For instance, Kotak Mahindra Prime - the subsidiary of Kotak Mahindra Bank— which offers car financing, has not passed on the 25 basis points increase in rate hike to its customers.“We will the see the demand for some time and take a decision after a month. The growth rate has come down and there is sluggishness in the market. It is not a very good environment for people to buy cars and take up a liability,” said Sumit Bali, CEO - car finance, Kotak Mahindra Prime.On the other hand, Union Bank of India has extended some schemes to their existing customers. “We have something called as the loyalty reward scheme for our home loan borrowers. We give them car loans at 1.5% lower rate. We are extending this scheme to our working capital borrowers and those who have taken loans against collateral. The whole idea is to give car loans to our existing customers first,” said Vivek Mhatre, general manager, Union Bank of India. Analysts feel the initiatives taken by banks may help in boosting demand for cars. Vaibhav Agrawal, vice-president (research), Angel Broking, said, “The customer wants a smooth process for loans so these kind of tie-ups and schemes do help. It does make a good proposition for banks due to which other banks may look at it.”. Sudhir Kukreja, analyst with Dolat Capital, said, “These schemes and incentives might not really change the overall sentiment in the market, but will definitely help in boosting the sales for time being as customers might think of preponing their purchases owing to different schemes and discounts available in the market.".