RBI buyback rate hike likely to have nominal impact on car loans and sales

The Reserve Bank of India (RBI) surprised by announcing a 40 basis points (bps) or 0.40% increase in its lending rate to commercial banks and a 50 bps or 0.50% increase in Cash Reserve Ratio (CRR). After a four-year hiatus, the repo rate rose to 4.40% from 4% previously, while the CRR was raised to 4.5%. And the sudden overhaul has raised concerns among car buyers and automakers about the impact it’s likely to have on sales.

Vinkesh Gulati, President of the Federation of Automobile Dealers Associations (FADA), said: “The RBI’s decision to raise the repo rate by 40 basis points clearly caught everyone off guard. This move will reduce excess liquidity in the system and make car loans expensive. “

Read also : RBI Repo Rate Rise: How It Will Affect Two-Wheeled Loans

RBI announced a 40 basis point (bps) or 0.40% hike in its commercial bank lending rate and a 50 bps or 0.50% increase in the cash reserve ratio (CRR).

The revisions made by the central bank should have a nominal impact on interest rates on loans. But according to our sources at the State Bank of India (SBI), interest rates on any loan across all sectors will not see an upward revision above 0.40%. In fact, the rise in commercial banks is expected to be well below the 40 basis point mark and the same is true for auto loans. At present, interest rates on car loans range mainly from 7.4% to 8.3% across the banking sector, which could be revised to a maximum of 7.8% to 8 .7%, if commercial banks decide to pass the entire charge on to customers. .

For your view, the real interest increase per lakh is likely to be just Rs. 400 per annum (PA) if the entire burden is passed on, resulting in an increase of Rs. 33.33 per lakh per month. So let’s say if you take a loan of Rs. 10 lakh, your interest rate is likely to increase by a maximum of Rs. 4000 PA which will result in an increase of Rs. 333.33 in your monthly EMIs of car loan.


At present, boosting production in an effort to maintain adequate inventory and reduce long lead times remains the primary concern of automakers and stakeholders.

Sharing his views with carandbike, RC Bhargava, President – Maruti Suzuki said: “We already have a huge backlog due to the chip shortage, so the rate review will not have a major impact. on our sales. This is a nominal revision, so interest rates will have a very minimal effect, so customer sentiments won’t be badly affected as they won’t really feel the impact.”

Sharing his view on the overall impact, Sridhar V, Automotive Analyst, Grant Thornton LLP, said: “The impact of the RBI rate review will be minimal on short-term auto loans and may induce customers to hold back their buying instinct as the cost of vehicle acquisition may increase, but in the medium to long term it will be neutralized as the low interest rate regime may be behind us and we will not OEMs cannot expect lower interest rates in the near future, as they are currently facing higher input costs, higher fuel prices, and the availability of manufacturing materials. critical input, which could be another additional aspect that could hamper their sales. The industry will soon consider a request creating sops like the GST reduction, which they have been seeking for a long time.”

The industry has been bearing the brunt of a global semiconductor supply crisis and, for now, ramping up production in an effort to maintain adequate inventory and reduce long wait times remains the biggest concern of car manufacturers and stakeholders.

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Rising interest rates on loans and deposits are likely to impact buyer sentiment.

Even observers said a 40 basis point impact on interest and IMEs would be minimal. Thus, the overall volume outlook remains more or less the same. Volume segments that range from Rs. 5 lakh to Rs. 18 lakh (sedans and compact cars and SUVs) will likely see a very nominal impact as the standard loan amount taken out for these cars ranges from Rs. 4 lakh – Rs 12 lakh and the maximum increase in monthly EMIs in this case will be around Rs. buyers in general will take time to understand the impact of the quantum of the rise in interest rates.