The Hindu Business Line : Banks gearing up to design special loans for Nano

Mumbai/New Delhi, Jan 20 The ‘Nano’ phenomenon has opened up a new category of borrowers — somewhere between borrowers for two-wheeler loans and cars loans, say bankers reacting to the Tata car launch.

ICICI Bank is looking at offering personal loans along with a car loan for the Nano. “The Rs 1-lakh car has created a new segment of customers, who would typically fall into the middle-class or lower middle-class segment. The loan should, therefore, not only cover the capital cost but also the running cost of the vehicle as it will otherwise be difficult for customers to meet the monthly expenses arising out of the car,” Mr Ravi Narayanan, Group Business Head, Vehicle Loans, ICICI Bank.

With the volumes of the Rs 1-lakh car expected to pick up, the four-wheeler share of auto loans could increase over the next three to four years. This will push banks to design products to meet the changing customer profile, operating cost and logistics requirement, Mr Narayanan added.

The interest rate on loans for Nano is likely to be higher than the rate for other cars but lower than the rate on two-wheeler loans. Similarly, the tenor of the loan may fall in between that of a car loan and a two-wheeler loan. Currently, interest rates on car loans and two-wheeler loans range from 12-14 per cent and 18-22 per cent respectively. While the tenor of a car loan is around five years, it is around two years for a two-wheeler.

Mr Ramesh Iyer, Managing Director, Mahindra Finance, said, “The category of customers who were thinking of buying a second-hand car or a two-wheeler may now look at the Nano.” However, he also felt that the EMI may have to be kept low by extending the tenor of the loan to stay competitive.

Higher risk profile

Mr Manoj Mohta, Head-Research, Crisil said the customer for Nano would have a ‘higher risk’ profile compared to other cars and may be closer to the risk profile of a two-wheeler customer, with default rates in the latter category being higher. “Depending on the competitive pressure, banks might charge a higher interest rate than other car loans to adjust to the change in the risk profile,” he said.

Some banks, however, are taking a cautious stand and will look at aspects like the resale value of the car before deciding on the interest. “We will be cautious while funding loans for the Nano car because often with Tata cars, whether it is the Indica or the Sierra, design defects have cropped up and customers have been dissatisfied. If there are design defects it will affect the resale value of the car which could drop to just Rs 50,000-60,000,” said Mr P. Sridhar, Senior Vice-President, IndusInd Bank.

More Stories on : Cars | Consumer Finance | Tata Motors Ltd

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