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SBI to raise interest rate on car loans

State Bank of India will increase the interest rate on car loans by at least 50 basis points from Monday to bring these in line with competing banks.

A senior SBI official dealing with the retail business confirmed the country's largest lender's decision.

He did not reveal the quantum.

SBI's website shows its car loan rate as 11.25per cent.

Competitors like ICICI Bank, HDFC Bank and Axis Bank levy levy rates that are 25-400 basis points higher, based on tenure and the amount of loan.

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SBI to raise interest rate on car loans

Another SBI official said the bank's present rate was cheaper than others.

"A hike of, say, 50 basis points will not make our product costly. Nor will it move the demand to some other player," he told Business Standard.

Also, SBI is not planning to change its rate for two-wheeler credit.

"This is not a priority segment for us.

"The bank incurs higher per unit cost due to small ticket size and higher risk of defaults," he added.

SBI's auto loan portfolio stood at Rs 22,025 crore (Rs 220.25 billion) in September 2011, showing a growth of 25.25 per cent over September 2010.

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SBI to raise interest rate on car loans

Its pace, however, showed a moderate rise in the first six months of this financial year.

Its auto loan grew by just Rs 1,115 crore (Rs 11.15 billion).

The auto loan portfolio at the end of March 2011 was Rs 20,910 crore (Rs 209.1 billion).

The bank's annual growth in lending for purchasing of vehicles declined to 17.9 per cent in November 2011 from 25.57 per cent in the year-ago period.

The vehicle loan portfolio of banks was Rs 86,877 crore (Rs 868.77 billion) in November 2011, according to the Reserve Bank of India.

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SBI to raise interest rate on car loans

The passenger vehicle industry saw strong growth for four years, till the end of the last financial year.

According to a sectoral review by rating agency Icra, it showed a robust compound annual growth rate of 16.3 per cent in 2007-11.

However, since the beginning of 2011-12, the industry has been witnessing a slowdown in volume growth marred by rising inflation, hardening interest rates and increasing fuel prices that combined to dent consumer sentiment.

Even the festive season failed to stoke domestic demand, despite new model launches, aggressive discounts and promotional schemes offered by OEMs, according to Icra.