PSBs, car companies signing agreements with a hope to push sales

From the last six to seven months automobile industry has been facing slump in demand but as the banks have started reducing interest rates on auto loans the automobile companies are trying to take full advantage of this. The auto companies are getting into tie-up with public sector banks (PSBs) to offer cheaper finance to the buyers to push their sales.

Except for State Bank of India, PSBs, which are having less than 20 per cent share in the auto finance business, are signing these alliances with a view to attain a bigger share of the pie.

SBI, and other banks such as HDFC Bank, Axis Bank, ICICI Bank and Kotak Mahindra Bank all account for 75 per cent of the market share.

Recent tie-up between banks and auto companies include Punjab National Bank (PNB) and Syndicate Bank with Hyundai Motors, Andhra Bank and Bank of Baroda with General Motors, Central Bank of India and Corporation Bank with Tata Motors, Punjab and Sind Bank and Corporation Bank with Maruti Suzuki.

Besides lower interest rates, some of the deals offer facility of lower margin money. Along the retail tie-ups, many auto dealers have also signed up with country’s largest lender SBI.

Hyundai Senior Vice-president (marketing and sales) Arvind Saxena stated, “The rates offered by public sector banks are much more attractive than the ones offered by private sector players. In addition, these banks have a wider reach across the country. The share of PSU banks in our sales has risen to 30 per cent from 18 per cent earlier”.

Auto makers also stated that now the processing time required for a vehicle loan by a public sector bank has also reduced.

General Motors India Director and V-P (corporate affairs) P Balendran informed, “Private sector banks had a market share of 70 per cent while PSU banks had a share of about 10-15 per cent and the balance was in cash. PSUs’ share has gone up to 35-40 per cent as of today. Speedier processing of loans by PSU banks has also helped them gain market share besides lower interest rates”.

In February Maruti Suzuki, a leader in the passenger car segment, had sold 70,625 vehicles, thus an increase of 19 per cent over same period last year. According to auto analyst with equity broking house maybe this is an indication of change in the business sentiment.

Public sector banks (PSB) are also seeing opportunity in signing these tie-ups as this can help in filling the gap in the financing market ever since private banks reduced their auto finance portfolio considerably. PSBs have the advantage of a huge network especially in the rural sector which has not been much impacted by slowdown.

But while sanctioning loan banks are scrutinizing a loan application very carefully.

According to credit head of small public sector bank, “Even if tie-ups are in place, it does not mean that branches would start work is gusto. They will make doubly sure that credit proposal is going to be sound to avoid for containing increase in incidence of bad loans”.