Interest rate hike and mounting inflation has put the brakes on the speeding auto financing industry in the country. Bad times be damned!
im O’Neill, Sandra Lawson and Roopa Purushothaman who had concluded (in their paper titled, ‘The BRICs and Global Markets: Car, Crude and Capital’) that India’s market growth will be rapid with the potential for a threefold increase in car ownership over the next 10 years, might once again have to redo their work and radically change their conclusion. Well, the reason for the reconsideration being the rising raw material cost, slowing credit & signs of economic slowdown. All of these have cast a dark spell on the sector which now seems to be bearing the brunt of the economic slowdown, as well as interest rates that are rising by the day.
Certainly, the last five months have been a bit wary for auto loan consumers. The interest rates on auto loans have been hiked four times in a row. This has forced the banks to cut down on their retail lending by about 15-20%. Further, given the tight monetary stance by the central bank and its advice to the banks not to overstretch themselves and keep lending in consonance with their sources of funds (limit credit growth up to 20%), the banks’ margins have squeezed. Hence to maintain their profitability, they are left with no option but to revise their lending rates. With inflation (currently pegged at 12.44%) continuing to surge, a cut in the interest rate is unlikely in the near term and volumes are likely to remain under pressure. So much so that the current interest rates on auto loans which hover around 15.5% have had a direct impact on the buying behaviour of consumers. Sadly, these high interest rates (on the part of the financers) and lower buying sentiments (on the part of the consumers) will continue to negatively impact the demand for vehicles.
im O’Neill, Sandra Lawson and Roopa Purushothaman who had concluded (in their paper titled, ‘The BRICs and Global Markets: Car, Crude and Capital’) that India’s market growth will be rapid with the potential for a threefold increase in car ownership over the next 10 years, might once again have to redo their work and radically change their conclusion. Well, the reason for the reconsideration being the rising raw material cost, slowing credit & signs of economic slowdown. All of these have cast a dark spell on the sector which now seems to be bearing the brunt of the economic slowdown, as well as interest rates that are rising by the day.
Certainly, the last five months have been a bit wary for auto loan consumers. The interest rates on auto loans have been hiked four times in a row. This has forced the banks to cut down on their retail lending by about 15-20%. Further, given the tight monetary stance by the central bank and its advice to the banks not to overstretch themselves and keep lending in consonance with their sources of funds (limit credit growth up to 20%), the banks’ margins have squeezed. Hence to maintain their profitability, they are left with no option but to revise their lending rates. With inflation (currently pegged at 12.44%) continuing to surge, a cut in the interest rate is unlikely in the near term and volumes are likely to remain under pressure. So much so that the current interest rates on auto loans which hover around 15.5% have had a direct impact on the buying behaviour of consumers. Sadly, these high interest rates (on the part of the financers) and lower buying sentiments (on the part of the consumers) will continue to negatively impact the demand for vehicles.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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