Banks to set up special loans for Nano

The Nano has opened up a new category of borrowers - somewhere between borrowers for two-wheeler loans and cars loans, say bankers reacting to the Tata car launch.

As reported by Business Line, ICICI Bank is looking at offering personal loans along with a car loan for the Nano. According to Mr. Ravi Narayanan, Group Business Head, Vehicle Loans, ICICI Bank, the Rs 1-lakh car has created a new segment of customers, who would typically fall into the middle-class or lower middle-class segment. The loan should, therefore, not only cover the capital cost but also the running cost of the vehicle as it will otherwise be difficult for customers to meet the monthly expenses arising out of the car.

With the volumes of the Rs 1-lakh car expected to pick up, the four-wheeler share of auto loans could increase over the next three to four years. This will push banks to design products to meet the changing customer profile, operating cost, and logistics requirement, Mr Narayanan added.

The interest rate on loans for the Nano is likely to be higher than that of the other cars but lower than that on two-wheeler loans. Similarly, the tenure of the loan may fall between car loans and two-wheeler loans. Currently, interest rates on car loans and two-wheeler loans range from 12-14 per cent and 18-22 per cent respectively. While the tenure of a car loan is around five years, it's two years for a two-wheeler.

As reported by Business Line, according to Mr Manoj Mohta, Head-Research, Crisil, the customer for Nano would have a 'higher risk' profile compared to other cars and may be closer to the risk profile of a two-wheeler customer, with default rates being higher.

However some banks are being cautious and will look at aspects such as the resale value of the car before deciding the interest rate.

As reported by Business Line, Mr P. Sridhar, Senior Vice-President, IndusInd Bank said, "We will be cautious while funding loans for the Nano because often with Tata cars, whether it is the Indica or the Sierra, design defects have cropped up and customers have been dissatisfied. If there are design defects it will affect the resale value of the car which could drop to just Rs 50,000-60,000."