Tata Motors [Get Quote] Chairman Ratan Tata's dream to help the common man own a four-wheeler may meet its bete noire in bankers as ICICI Bank [Get Quote], HDFC Bank [Get Quote] and rival lenders realign rules to finance the Nano, touted to be the world's cheapest car.

To avoid being saddled with a large amount of bad loans, banks are keen to fund second-time car buyers as against two-wheeler owners, who intend to graduate to owning a car, bank officials, who declined to be identified, said.

Of late, the number of two-wheeler finance defaulters has reached an all-time high, forcing a number of banks to shut operations or reduce focus in states like Haryana, Uttar Pradesh, Madhya Pradesh and Bihar, among other high-defaulting regions.

"We will not look to finance the purchase of those who already own a two-wheeler, but are stretching their budgets to buy the Nano. We have faced numerous problems of delinquencies (with two-wheeler loans)," another banker said.

Banks are also keen on providing finance to those who previously owned a car and are planning to buy used cars for Rs 1,30,000-1,50,000 and also to those who had never bought a car despite having the resources.

While lending rates to finance Nano will be definitely higher than those for any other regular car models, say bankers, loans will be provided on a prerequisite basis by finely scrutinising the borrower's financial condition. Such reassessment was seldom undertaken earlier for any automotive product. 

Private and state-owned financing firms are upbeat on the launch of the Nano as it opens up a completely new segment, bridging the gap between a two-wheeler and a conventional car in pricing terms. The car will generate a large business portfolio, believe the country's leading financiers.

Most finance companies are awaiting the final price of the car, which will only be unveiled at the time of its commercial launch in October, to design a typical finance package.

Although no final word is exchanged on the interest rate, it is an issue that has been impacting vehicle sales for the last few months. Banking officials agree that it will be higher than other cars, which are priced at least twice the Nano's rate.

An official from another bank said, "Nano is not a regular product. Although we are upbeat about financing it, we will not rush into it. The pattern of buyers will be largely similar to that of two-wheeler buyers. We will have to consider all the elements before deciding on the finance."   

"We are ready to fund about 85 per cent of the total value of the product, but the loan-to-value (LTV) ratio may be reduced," the official added. 
 
Tata Motors has promised to sell the Nano at Rs 100,000 (excluding VAT and transportation charges), making it the world's cheapest car. The final price to the customer (the on-road price) will, however, be closer to Rs 1,30,000, including excise duty, insurance and road tax.

The company will commence trial production shortly while the booking is likely to open in September.

• Tata Nano: Complete Coverage