The Hindu Business Line : High interest rate slows down vehicle finance

“This slowdown may be short-lived, as the introduction of new models will boost the demand for new vehicles, thereby keeping the vehicle finance market buoyant.”

Shobha Kannan

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Kolkata, May 29 High interest rates will curb demand for auto loans in the current fiscal, according to senior bank officials familiar with these developments. They estimatethe finance for new cars will grow at 10 per cent in 2008-09, down from 12 per cent growth in 2007-08.

According to Mr Manoj Mohta, Head-Research, Crisil, “The forthcoming launch of Nano might result in some de-growth in the mini car segment. Interest rates might also have a slight upward bias on account of concern on the asset quality and the regulatory environment, thereby affecting the finance”.

This slowdown may, however, be short-lived (two-to-three months), as the introduction of new models will boost the demand for new vehicles, thereby keeping the vehicle finance market buoyant, bankers say.

“The growth in car finance will be driven partly by higher price realisation and partly by strong volume growth in the compact and premium segments on account of new model launches,” said Mr Mohta.

There is generally a slowdown when rates go up. However, this would be offset by the demand, said Mr Ramesh Iyer, Managing Director, Mahindra Finance. “There is a demand for vehicles, and manufacturers will want to tap the market. They will, therefore, try to step in and give some kind of benefit to customers in terms of a marketing programme support, a subvention or credit facility,” said Mr Iyer.

In the vehicles business, a new model is always welcome and adds more customers forthe industry. “Whenever a new model is launched in the market, there is a spurt in demand. The launch of new cars gives an impetus to shorten the vehicle ownership cycle, which in turn leads to an overall pick up in sales,” said Mr N.R. Narayanan, Group Business Head-Vehicle Finance, ICICI Bank.

Explaining his point further, Mr Narayanan said that the sales of some manufacturers picked up during 2007-08 because of the introduction of new models. This could have also been one of the reasons among several other factors for the fall in sales in the two-wheeler industry. “This year there will be close to 25-30 new models from all key car manufacturers, boosting customer demand thereby increasing the need for finance,” he added.

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