SBI, Maruti may forge car finance pact  ( February '3,2003, ET)

State Bank of India and Maruti Ugyog are understood to have agreed on a strategic alliance for car financing. A formal announcement will follow the signing of an MoU between the companies. The top brass of SBI and Maruti are expected to meet in Mumbai to sign the MoU.

Sources said the entire subvention amount offered to the customers would be mentioned upfront under the new scheme. Subventions are basically discounts offered in terms of accessories offered by the car majors to attract customers. The subvention amount, which varies from one car to another, is structured within the interest rate charged by the financier. "This will be the key driving factor making the alliance successful," sources said.

State Bank will offer car loans at 11.25% on a daily reducing balance.

Currently, the rack rates on car finance hovers around 12-13%, while the negotiable rates are lower than 10% including discounts and subventions.

The move by SBI to tie-up with Maruti and pass on the entire subvention benefit to the customer is expected to make car financing deals more transparent and step up competition. The private banks, which operate through direct selling agents are most likely to be affected by the move.

Subventions currently range between Rs 1,000 for small cars to Rs 20,000 on big cars.

Sources said that SBI has decided not to recruit direct selling agents for car financing. Instead, it will tie-up with the manufacturers directly. At present, private banks and foreign banks, who have a large market share in car financing, operate through direct selling agents.

SBI's personal loan portfolio grew by Rs 4,467 crore for the first nine months ended December '02. Having made a strong presence in the home finance segment, the bank is now targeting a higher car finance portfolio.