The Hindu Business Line : ICICI Bank hikes auto loan rates; others may follow

ICICI Bank, the largest lender of vehicle finance has raised interest rates on two- and four-wheelers between 50 and 75 basis points with effect from April 15.

Next is likely to be HDFC Bank which is working out its strategy, post Cash Reserve Ratio (CRR) hike announced by the Reserve Bank of India recently. According to industry sources, Citibank has already pulled out of vehicle finance.

“ICICI Bank has already increased its lending rates and other banks may also make a similar move. While there has been pressure on financing for quite some time, the recent CRR hike would further suck out liquidity from the market which is certainly not a good signal for the automobile industry,” said Mr Arvind Saxena, Senior Vice-President, Sales and Marketing, Hyundai Motor India Ltd.

Banks cite high defaults, increased operating expenses due to longer transaction cycle and lack of collateral documents as the main reasons for the steady increase in lending rates. On an average, banks increase interest rates on a six-monthly basis. But in the last financial year, the interest rates have been revised on three or four occasions, revealed industry sources. For instance, ICICI Bank’s rates that were around 13.75-14.25 per cent till last month have now gone up to 14.5-15 per cent. “We would not be comfortable to work with dealers or customers if we are not provided with collateral perfection —the documents supporting the registration of the vehicle. Ideally, it is the role of the dealers, but in many cases where customers do the registration on their own, banks are not provided with the documents making it difficult to repossess the vehicle,” said Mr Rajan Pental, Senior Vice-President, Auto Loans, HDFC Bank. This is particularly true in non-metro cities.

“The cost of funds and operating expenses for banks are going up. Due to creeping interest rates, the completion of cycle for financing a vehicle has become longer leading to added costs. This has led to increase on interest rates on select models on two- and four-wheelers,” expressed an industry official from a leading bank who declined to be named.