State Bank of India [Get Quote] (SBI), the country's largest lender, froze interest rates for car loans at 10 per cent for a year last month from over 11 per cent earlier.

Hyundai Motors India, the second-largest car manufacturer, said the share of public sector banks in its finance portfolio increased to 30 per cent from 20 per cent around six months ago. "Besides lower interest rates, another important factor that prompted customers to switch was the reach of the public sector banks. SBI has over 11,000 branches across the country.

While Tata Motors [Get Quote], the third-largest car manufacturer, declined to comment, saying that it did not keep track of the finance portfolio, a leading Kolkata-based dealer said that the proportion of PSU bank loans had doubled to around 10 per cent from the  earlier 5 per cent, and it is likely to go up further.

Even premium car maker Honda Siel Cars India said that PSBs had increased their share to 20 per cent from 12 per cent six months ago. "We are exploring further tie-ups with nationalised banks," said a spokesperson of the Gurgaon-based company.

Lower interest rates offered by PSBs had hit private car financiers too, particularly for cars priced below Rs 5 lakh. "There is a gap of at least two-two and a half per cent between non banking financial company (NBFC) and PSBs. This has substantially impacted our business. Car loan disbursals have been down by at least 20-25 per cent in the last two months. In such a scenario, we have to realign our policies and target the income group not covered by banks, which is definitely little riskier investment for us," said an official of a Kolkata-based NBFC, prominent in car financing.

On the other hand, PSBs have seen a pick up in car financing. On a year-on-year basis, car loan disbursals have increased by 30 per cent at Kolkata-based United Bank of India, which has a tie-up with market leader Maruti Suzuki for car financing. "There has been a pick up the car loan on a year-on year basis, and the disbursals are in the range of Rs 7-8 crore every month," said UBI ED T M Bhasin.