The relentless assault on interest rates in a bid to rein in runaway prices is yielding results: the demand for vehicle loans has come down.
The growth rate of vehicle loan volumes have almost halved so far in 2011-12 compared to the same period last fiscal, Reserve Bank of India data showed.
While vehicle loans disbursed by banks in April to October 2010 rose by 13%, in the current year the pace has come down to just 7% this fiscal year.
Interestingly, apart from the plunging auto sales, another factor for this decline is a rise in cash-down purchases.
Among car and utility vehicle buyers, customers opting for vehicle finance went down from 80-84% to 70-74%, according to Pawan Goenka, president, Mahindra & Mahindra.
“Another trend is people increasing their down payment. The LTV (loan-to-value) ratio came down from 85% to 75%, in some cases 50:50,” he said.
The increased cost of finance added up to the overall cost of vehicles, prompting many aspiring car buyers to postpone their purchases.
“There is a decline in demand for vehicles and it impacted vehicle loans as well. Hike in interest rate also is a crucial factor,” said Jairam Sridharan, senior vice president and head of consumer lending, Axis Bank. Auto loans account for 13% of Axis Bank’s retail lending.
RBI has hiked the repo rate 13 times by a cumulative 3.5 percentage points since March.Maruti still lags, but auto sales rise 7% in November
After four months of decline, domestic car sales in India grew by 7% in November despite market leader Maruti, which controls almost half of the industry volumes, posting a near-20% decline in sales during the month.
Second-placed Hyundai Motor, homegrown Tata Motors, Toyota, General Motors, Ford and Volkswagen all grew handsomely during the month, but industry body Society of Indian Automobile Manufacturers (SIAM) warned that December could see sales drop again and a full revival will only happen in 2012.
“Sales would fall again in December though it would not be as drastic as in the last four months,” said Sugato Sen, director, SIAM. “Sales growth would only happen from January onwards but even then it would not be enough to reach our target of 2-4% for the entire fiscal.”
So far this year, car sales have declined by 3.5% as a mix of high interest rates, fuel prices and runaway inflation have dampened consumer sentiment.
There is however, no hint of a slowdown in two-wheeler sales in the country, which grew by over 25% during the month. The segment that accounts for a lion's share of overall industry volumes, ensured that total automobile sales in the country grew by 22% during the month at 1,489,714 units.