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Car finance companies to reduce lending rates - Views on News from Equitymaster
 
 
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  • Feb 11, 2000

    Car finance companies to reduce lending rates

    In the next few days many car finance companies are expected to reduce their lending rates. Currently lending rates in this segment hover around 17%-18% and these are expected to fall to 15%-16% in the near future.

    This move has been triggered off by ICICI which is offering an interest rate of 16% on car loans currently. As ICICI has got into the retail segment in a very aggressive way this can be seen as its route of garnering up a substantial market share in the auto loan segment.

    According to a news article Standard Chartered has already slashed its interest rates from 18% to 16% in Delhi, and the rates in the Mumbai market too are expected to fall soon. Kotak Mahindra Primus also plans to slash rates from 18% to 15% in the next few days. Also other players in the car finance market are expected to reduce rates over the next couple of days.

    This rate reduction by car finance companies will definitely put pressure on their margins, as their lending rate cut is not commensurate with a fall in their cost of funds. Their borrowing rates have remained steady despite the RBI's efforts to bring down interest rates. This move has been triggered off more by competition in the car finance segment than by reduction in their cost of funds. Many industry players feel that this rate cut will not impact their margins (as their cost of funds have been steadily declining). However this additional cut of 2%-3% and should impact the margins of these companies to some extent.

     

     

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