Car loan rates in India may get dearer soon

The auto loan in the Indian market may get dearer as Reserve Bank of India has announced that it is going to hike the short-term borrowing and lending rates by 0.50 per cent and 0.25 per cent respectively. The move of hiking these rates has been taken in a bid to arrest double-digit inflation. According to industry experts, increase in the lending and borrowing rates could lead Indian banks to hike their respective auto and commercial loans. Both finance ministry and industry experts have countering views on this move. Where the ministry believes that it would check inflation without affecting growth, the bankers feel otherwise.

The decision of increasing short term lending and borrowing rates has been taken following the first quarterly monetary policy meet. With immediate effect, where the short-term lending rate (repo) has reached to 5.75 per cent, the short-term borrowing rate (reverse repo) has jumped to 4.50 per cent. . However, the Cash Reserve Ratio CRR) and the bank rate has been kept unchanged.

With this, the inflection target has been raised to 6 percent by the Central Bank from previously set target of 5.5 percent. Going on the same line, the projected economic growth has been increased to 8.5 percent from earlier projection of 8 percent. According to Mr Rajan Mittal, president at FICCI, the reverse repo (rate) increase will incentivise parking of funds by banks with RBI along with reducing lending opportunities to industry. He added that there is always an underlying fear of the rate hike eventually leading to increase in lending rate.

However, the increase in the lending rate doesn't seem to have a significant effect on the growth of the automobile sector as industry is witnessing a never before growth momentum with the launch of a series of new cars in India in recent months.