Banks’ 100% financial for cars trigger bad loan fears

MUMBAI: Hit by bad loan approach from corporates, some private banks now offer 100% financing for cars, a pierce that might assistance a vehicle marketplace to miscarry though has also been criticised for risking a swell in bad loans. Banks such as Axis Bank and HDFC Bank give 100% financing for cars while Kotak Mahindra Bank gives 95% financial to cars. Some banks also account a vehicle word cost, attention insiders said.

While it might be good for consumers and carmakers, it’s a unsure business for banks since of 100% loan-to-value ratio, that is loan we owe in propinquity to how most a item is worth. Ideally, a value of a item for that a loan is given should be aloft than a loan outstanding. That is not a box here. “This is a same stupidity we had seen in a home loan marketplace where banks gave 100% loans to home borrowers.

They also gave additional appropriation for furnishing homes,” pronounced Romesh Sobti, handling executive and CEO during IndusInd Bank. “This lead to a subprime predicament when skill prices crashed. In a vehicle loan marketplace also, 100% financing could lead to a bubble,” he said. IndusInd Bank offers adult to 75% financing for cars. “The loan-to-value ratio should be such that a borrower should have put in some equity,” Sobti said. Email queries sent to Axis Bank, HDFC Bank and ICICI Bank did not bleed any response during a time of going to press. Banks are confronting foe from serf financial companies of several vehicle companies that offer adult to 100% financing and freebies. Banks also contest with any other and undercut foe to get business.

“Banks give 90% financial to business for shopping of cars. However, to cut foe and benefit marketplace share, we widen adult to 95%. Banks also run schemes with dealers where they give 100% financial on certain models and also account a word cost that is afterwards bundled in a EMI,” pronounced a approach sales representative of a private zone bank. Banks give 100% financial on cars like Maruti Swift Desire, Wagon R, Maruti Alto, Ford Ecosport, Nissan Terrano and Renault Duster. This offer is for business with income of over Rs1 lakh, a sales representative said.

Shinjini Kumar, executive during PriceWaterhouseCoopers, forked out that vehicle financial does not work a same approach as home and bullion loans since a value of a vehicle depreciates as shortly as it leaves a showroom. “In box of a vehicle loan, a chances of recuperating a loan by sale of a vehicle are minimal. Rather, liberation is fundamentally tagged to a amends ability of a borrower. It is, therefore, critical that banks have good estimation processes,” Kumar said. Poor expansion in corporate credit is creation banks aggressively pull their consumer business.

Private zone banks like ICICI Bank and HDFC Bank have seen their sell book grow by over 20% year-on-year. ICICI Bank’s sum advances book increasing by 17% to Rs3,38,703 crore with sell resources flourishing 23%. Axis Bank in a Mar entertain saw the advances grow by 17% year-on-year, driven by expansion in sell loans during 31%.

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