Smooth drive

Mumbai, Sept. 24: ICICI Bank has decided to offer floating rate loans to purchase cars and commercial vehicles.

It will be the first in the country to offer a floating rate repayment product for car loans, commercial vehicles, construction equipment and professional equipment loans.

The move is designed to attract customers at a time when interest rates have started showing signs of peaking out.

The private sector bank is the market leader in the car loan segment with a share of around 30 per cent. However, like others in the sector, ICICI Bank has seen fewer customers queueing up for car loans because of the high interest rates.

At present, the effective rate of interest on fixed loans is between 13 and 13.75 per cent. Though car sales have risen by around 12 per cent to August from April last year, high interest rates have resulted in only 72 per cent of individuals buying cars through loans. This is down from around 85 per cent a year ago.

ICICI Bank today said it would now offer an option of floating rates to those buying cars. The bank explained that with the scorching pace of growth in the auto industry, it was essential to launch a product which would give more options to customers.

The State Bank of India, HDFC Bank and others are expected to follow ICICI’s lead in offering a floating rate option on retail loans.

The floating rate that the bank is offering is linked to the floating reference rate, the benchmark used to price floating rate loans to its retail customers.

According to the bank, the floating rate is now available to customers at 50 basis points lower than the equivalent fixed rate product.

N.R. Narayanan, head of vehicle loans at ICICI Bank, told The Telegraph that the bank hoped to use the floating rate option to reach out to people who are holding back from car purchases in the hope that rates would dip in the near term.

“We expect floating rate loans to appeal to customers who hold a positive outlook on the interest rates,” he added.

Narayanan said nearly 70 per cent of the car loan takers have been opting for a tenure of up to three years and the average portfolio is between 40 to 43 months.