State Bank of India has taken the lead once again. This time, the country’s largest bank has frozen interest rates for a year on new car loans at 10 per cent and loans to farmers against warehouse receipts at 8 per cent. The revised car loan rates will be on offer for a limited period from February 23 to May 31 and the interest rate will be reset at the applicable card rate after June 1, 2010.
Currently, the bank charges 11.5 per cent upwards on car loans. These are linked to the benchmark prime lending rate and vary depending on the tenor of the loan. Other public sector banks currently charge between 10.25-12.25 per cent on car loans.
Under the new scheme, SBI is targeting a disbursal rate of 20,000 loans a month. SBI saw a growth of 32 per cent in its auto loan portfolio, at Rs 8,970 crore for the period ended December 31, 2008.
In the third quarter review of the Monetary Policy, the Reserve Bank of India had indicated that commercial banks must cut lending rates to productive sectors in order to revive economic growth. The auto and housing segments have seen lower growth over the past few months, partly due to high interest rates. Car sales in January had fallen by 3 per cent compared to the year ago period.
On January 31, SBI had announced a freeze on interest rates on new home loans at 8 per cent for a period of one year. Under this scheme, the bank has already received 10,000 applications and over 8,000 have been approved.
SBI has also frozen interest rates on loans to farmers against cold storage and warehouse receipts at 8 per cent for 12 months. These loans are currently offered at rates ranging from 10.5-14.25 per cent. The loans will be made available to farmers, irrespective of whether the farmers were given crop loans for raising produce or not. The scheme is available for loans sanctioned and disbursed till end-May.