Banks -All set to grap the open opportuinity with Nano in tune

Banks are charging a differential rate for booking finance for the Nano with interest rates on booking finance being higher than auto loan rates for the car. The Nano, the eagerly-awaited Rs 1-lakh car from Tata Motors has become available for booking from March 23.

Bank of India — the latest lender to announce a package for funding the Nano — has already decided on booking finance rates. BoI’s normal auto loan rates, that become applicable once the car is hypothecated to the bank and delivered, would be around 10-11%. However, at the booking stage, ie, till the delivery of the vehicle, the bank will charge 12-12.5% interest.

Private banks price their loans in the range of 11.75-13% for financing of new cars.

State Bank of India and Punjab National Bank have already announced a tie-up with Tata Motors. Earlier, SBI had announced that it was freezing interest rates on loans for purchase of all new cars at 10% for the first year. PNB said it would charge between 10.50% and 11% for the Nano — 0.5% lower than its standard rates.

Many bankers, largely from the public sector, feel that the car has the capacity to open up vast new markets as it is targeted at people who never owned a car before. Since the focus is on affordability, they felt that cheaper loans will be more effective.

Time to lock our money in bank FDs

Investors looking at high returns on deposits should soon lock their money with banks since interest rates on retail deposits have peaked.As mentioned in my last post that repo rates have been cut down which indicates that this is the beginning of a soft interest rate regime. Further, it is being said they would first lower their deposit rates and then reduce lending rates. This indicates that banks may come under pressure to reduce deposits rates. Currently, most banks are paying a maximum rate of 10.5% for one to less than three years while senior citizens are entitled for 11%. Interestingly, the 10.5% offered on deposits for three years was last offered in 1999-00, following which the interest rate cycle began to turn southwards. Rates had fallen sharply to 5.25-5.50% in 2003-04. The country’s largest housing finance company, HDFC, offers as high as 10.90% for 30 months if an individual deposits Rs 1 lakh and above. While for deposits below Rs 1 lakh, HDFC offers 10.55%. Although 10.5% for 390 looks attractive, ideally, a depositor should invest in long-term deposits like 890 days. This will help them avoid a negative impact of lower interest rates. This means that if a depositor parks his money in long-term deposits, even if the interest rate cycle turns, the depositor would gain. The highest rate on longest tenure is 10.5% offered by India’s largest bank, SBI, which is for 1,000 days.