[balechaparka]

Todays Bangalore times of India edition
http://timesofindia.indiatimes.com/b...w/22218056.cms

The State Bank of India (SBI) has tightened the eligibility criteria for its car loans and will now extend finance to only those earning over Rs 6 lakh per annum. The bank has cited inflation as the reason behind the move, but, sources say, that the bank is being cautious given the slowdown in the economy.


"Given the cost of petrol, maintenance, insurance and other costs, we feel that family income of Rs 50,000 is required for someone planning to buy a car," said a bank official. The bank has also started charging a processing fee of 0.51% of the vehicle's cost.

[ghodlur]

Thats some bad news for a Monday morning. This tightening measure although seems right for SBI, many first timers or those who were thinking of an upgrade will be badly hit. I guess other lenders will soon follow with their own rules.

[gaurav_3000ad]

With the falling rupee, rising inflation and overall pessimistic attitude in the indian economy it is no surprise that banks will be taking necessary steps to secure repayments.

Another blow to the battered punching bag that is the indian auto industry.

[F150]

Makes sense actually, 6 L per annum means 41- 42K per month. One can afford to go for a car loan with an EMI upto 10K.

Given the fact the cost of living has increased over the years, it should actually be the individual's call whether to go for a car loan or not.

But then SBI is SBI

[Wildy]

Originally Posted by F150

Makes sense actually, 6 L per annum means 41- 42K per month. One can afford to go for a car loan with an EMI upto 10K.

I don't agree with that. If you look at the car sales, Maruti's Alto is still on higher sales which mostly buy the middle class people who's monthly income is between 20 to 30k. And their monthly premium is very less for the car. Moreover, now a days a car is essential rather than a luxury. SO, IMO this new SBI's policy is pretty wrong and ultimately it's going to be their loss in this aggressive competitive world.

[Sommos]

I don't see something very wrong with this decision.

Monthly salary (Gross) of 50K means 35K after TDS. It is quite difficult to make out a decent living with 35K for a family of two even in the smaller towns, leave aside the tier 1 cities. If both are working it is a different case.

But I don't understand why the banks should be bothered if there isn't a high rate of NPA. It is actually an individual's decision.
Maybe this is a short term measure by the MoF to curtail the fuel consumption.

[JayPrashanth]

Access to finance is one of the biggest factors that's been driving car sales in India. Any tightening here will hit the hatchback segment directly.

And If other banks begin taking cue from SBI, the banking bellwether in India, the car industry will have a real problem at hand.

Cheers,

Jay

[hemanth.anand]

IMO this is one more jolt to the already bad Auto-sales.
So on an average, it will take a fresh graduate starting his career, 5 years to be eligible for a SBI car loan!
SBI is playing it safe but this is not a good step at all IMO.

Edit:

Originally Posted by Sommos

Monthly salary (Gross) of 50K means 35K after TDS.

15K TDS for a 50K salary!!! How did you arrive at this!

[zenren]

Although it would be a disaster to auto industry, it makes some sense if this is a short term measure. This just means the road ahead is going to get much worse than our govt currently admits.

Food prices are likely to go up in the coming months, which means the minimum amount to run the household would increase without a corresponding increase in the pay. Given the exchange rate of Rupee and the Syria crisis, petrol is going to get much more costlier in the immediate future. So a car buyer, especially of a petrol variant would need sufficiently deep pockets to keep the car running.

Also from a recovery perspective, with the slump in the auto sales, the resale value would also take a hit making it difficult for the banks to recover the amount in case of defaulters since the collateral is the car itself which might be worth lesser than the outstanding amount. From an NPA point of view, higher fraction of NPAs for big banks would further weaken the Rupee in future, causing a cascading effect to what we are already seeing, but at a higher degree.

[puchoo]

Whether they admit it or not i am sure defaulting is a strong reason as well , inflation means disposable income reduces which in turn not only effects the ability to take a loan of a certain amount but also added pressure on being able to pay one back.

[sarathlal]

To think in another perspective, the bank is just thinking on the repayment capabilities of their potential consumers. If they donot do this, then they are not doing their primary homework task.

And it may not be in their priority list, to think of saving the auto industry. Maybe it is time for the auto players to think of more economist ways of wooing customers and at the same time, making profit.

[babhishek]

Originally Posted by hemanth.anand

IMO this is one more jolt to the already bad Auto-sales.
So on an average, it will take a fresh graduate starting his career, 5 years to be eligible for a SBI car loan!
SBI is playing it safe but this is not a good step at all IMO.

Edit:

15K TDS for a 50K salary!!! How did you arrive at this!

its not really 15k TDS, its 35k after TDS and other deductions ( there is a difference : retirals, gratuity, pf, LTA not paid monthly, medicals not paid monthly, annual bonus if any etc etc )

The figure is more or less okay,isnt it?

[999]

Originally Posted by hemanth.anand

Edit:

15K TDS for a 50K salary!!! How did you arrive at this!

I think he just took 30% tax bracket without the benifits deduction, assumed 100% TDS.
Another "socialist" way of growth. Reduce consumption, without promoting growth. Reminds me of old russia in 1990s'. The need of the hour is to have a clean foreign and monetary policy. Rather than asking people to eat less, make more food !!!!

[ku69rd]

Agreed the bank is playing it pricey but am sure it is doing with a good intention of safeguarding the public money. Not doubting that a person who picks up a car loan will default but an ol English saying, Prevention is better than cure.
A pure preventive measure where they are trying to be defensive. Yes one tangent is it will hit the auto industry but am sure the private banks will watch this space more closer as they will make hay while sun shines if they do not follow SBI's footsteps.

[puchoo]

Originally Posted by ku69rd

but am sure the private banks will watch this space more closer as they will make hay while sun shines if they do not follow SBI's footsteps.

Agree completely , it opens up a marketing opportunity for other banks to acquire some of the SBI customers.