Pay 2% less on car loans

The State Bank of India has slashed interest rates on car loans by 2 percentage points. The country's largest commercial bank will offer car loans at bargain basement 7.5 per cent from February 15. It has also introduced new slabs with a clear view to encouraging big-ticket loans.

With this cut, SBI has created a huge gap between itself and ICICI Bank, the largest car loan financier in the country. ICICI Bank, which has over 30 per cent market share, offers loans between 9 and 11 per cent.

SBI's rate cut comes at a time when the automobile sector is booming. The car loan market is expected to increase to Rs 25,000 crore (Rs 250 billion) by March 2005.

Earlier, SBI, which has a 5 per cent market share, had a plain vanilla product priced at 9.25 per cent for loans up to three years and 9.75 per cent for loans, with tenures ranging between three and seven years. There was no differentiation of rates based on the amount borrowed.

Loans above Rs 800,000 for a tenure less than three years will attract a rate of 7.5 per cent. Loans under Rs 800,000 for a tenure less than three years will be charged at a rate of 8 per cent.

"These rates will be the lowest and we hope to shake up the market with this drastic cut," said a senior SBI executive.

V Vaidyanathan, senior general manager, ICICI Bank, dismissed SBI's move, saying: "ICICI Bank's effective rates to the customer are as low as 6-7 per cent."

SBI has increased the loan amount eligible to a borrower from 24 times his/her net monthly income to 30 times. It has also upped the age limit of the borrower from 60 years to 65 years.

With a portfolio of about Rs 2,100 crore (Rs 21 billion), SBI's pie mostly consists of lower-end and mid-segment cars, with most of their customers coming from the salaried class.