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Inflation, interest rates hit car loans

Rising interest rates appear to have applied the brakes on car loans with banks reporting sharp drop in fresh disbursals during the current yr, reports Sandeep Singh.

business Updated: Sep 11, 2008 20:44 IST
Sandeep Singh

Rising interest rates appear to have applied the brakes on car loans with banks reporting sharp drop in fresh disbursals during the current year.

But bankers expect an early turnaround month amidst expectations that the first tranche of pay commission arrear payments would spur growth around Diwali.

“The growth for the industry has been on a slowdown and we expect the arrears of the sixth pay commission will bring in liquidity and will improve the demand in the festival season,” said Ashok Khanna, head auto loans, HDFC Bank.

The car loan disbursement has been slow in the ongoing second quarter.

“The growth has come down from 13 per cent in the first quarter to 7 per cent in the second quarter,” said the head of auto loan of leading a bank on conditions of anonymity.

The Reserve Bank of India (RBI) launched an all-round monetary attack on inflation by raising key interest and reserve rates.

While the home loan rates have risen from a level of 7 per cent in November 2004 to 12 per cent currently, the car loan rates have grown from 8.5 per cent to more than 15 per cent at present.

The monthly outgo on a 5-year car loan of Rs 5 lakh currently stands at Rs 11,894—a rise of close to Rs 2,000 in three years.

“It ( rise in interest rates) has a direct relation to the falling footfall in car showrooms,” Khanna said. People are deferring their car purchases till interest rates come down, he said.

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