Earn at least Rs 6 lakh per year for SBI car loan

Bankers say tightening eligibility norms is a standard operating procedure during a slowdown in the economy.

The author has posted comments on this articleNandini Sengupta & Mayur Shetty, TNN | Sep 2, 2013, 04.01AM IST

CHENNAI/MUMBAI: 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.

Bankers say tightening eligibility norms is a standard operating procedure during a slowdown in the economy. "In good times, banks factor in some increase in salary for young people. But during a slowdown when jobs are not growing, salary hikes are also not certain," he said.

Sources said that the bank had discouraged branches from extending vehicle loans above Rs 1 crore after some defaults in loans advanced for purchase of high-end cars. Officials in Mumbai, however, denied that tighter eligibility criteria were triggered by defaults. Although the loan limit is up to four times an individual's annual income, subject to a maximum of Rs 6 lakh, the bank is extremely judicious in the loan amount. The maximum amount of finance is 85% of the value of the vehicle.

SBI's car loans are the cheapest in the country and are currently available at 10.45%. However, unlike other lenders, SBI loans are floating and benchmarked to its base rate. Consequently, there are no pre-payment charges for the bank's auto loans. The bank's car loan portfolio has soared 39% to Rs 26,411 crore as of end-June 2013, up from Rs 19,040 crore as of June 2012. The auto loan portfolio of the bank accounts for nearly 3% of its advances. In terms of retail, auto loans are the second largest component of their portfolio after home loans.

Even with the higher income threshold, over 10% of the country's population would be covered — still a sizeable market for SBI. Officials denied that this will dent the market for low-end cars. "There are many people who go for cheaper small cars as a second car."

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