FADA seeks RBI intervention against private banks delaying interest rate cut transmission to auto buyers

Share via: Despite the RBI’s repo rate cut, several private banks have allegedly not passed the benefits to the automobile buyers who have taken loans from these banks. …Read More Despite the RBI’s repo rate cut, several private banks have allegedly not passed the benefits to the automobile buyers who have taken loans from these banks. (AP) Get Launch Updates on Notify me The Federation of Automobile Dealers Associations (FADA) has sought the Reserve Bank of India’s intervention against private banks allegedly delaying the transmission of the interest rate cuts to automobile buyers. The apex automobile dealer body has called for a review of private banks’ repo rate passthrough lags in the auto-loan portfolio and issuance of corrective directives to ensure uniform 100 per cent transmission to automobile buyers. PTI has reported that FADA Vice President Sai Giridhar has written a letter to RBI Governor Sanjay Malhotra, seeking the apex bank’s intervention into the matter. “Under your leadership, the RBI has delivered the fastest series of policy-rate reductions in its history, a clear positive signal for the economy. Yet, this benefit is not fully visible in the auto-retail sector. While public-sector banks pass on repo-rate cuts to auto borrowers immediately, many private banks delay transmission on the pretext of internal cost-of-funds assessments,” Giridhar reportedly said. The report also stated that in order to ensure that private banks also transmit the benefit of the rate cuts, FADA has urged the RBI to monitor and enforce a strict, time-bound transmission of policy-rate changes across all banking institutions. It also reportedly suggested making periodic, public disclosure of banks’ cost-of-funds calculations to enhance transparency. FADA also requested the central bank to conduct a focused review of private banks’ repo-rate pass-through lags in the auto-loan portfolio, and issue corrective directives to ensure uniform, 100 per cent transmission to auto borrowers. The automotive dealers’ body urged the RBI to issue clear guidelines to all banks to ensure uniform application of MSME lending benefits to eligible auto-retail businesses, alleging that in several instances, banks have not extended preferential interest rates to MSME-registered dealerships, although auto workshops, service centres and smaller dealerships are eligible for MSME registration under the Udyam framework. FADA said in the letter that the guidelines must cover mandatory extension of concessional lending rates, priority sector classification and improved access to MSME-linked support schemes and grievance-redressal mechanisms. The association also called for extending the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to India’s auto-retail channel, saying that at present, authorised dealerships and workshops remain outside its ambit. It also called for recalibrating risk weights and unlocking priority sector benefits, saying banks today assign a 100 per cent risk weight to auto loans, which is significantly higher than the 40 per cent applied to home loans, even though vehicles serve as readily realisable collateral. By reducing the risk weight on auto finance, lenders could stimulate an estimated 20 per cent growth in disbursements over the next five years, FADA added. In its letter, FADA also drew RBI’s attention to boosting access to credit and EV finance, improving access to affordable credit, including lower interest rates for auto loans in lower tier towns and rural regions, among others. Get insights into Upcoming Cars In India, Electric Vehicles, Upcoming Bikes in India and cutting-edge technology transforming the automotive landscape. First Published Date: 27 Jul 2025, 08:14 am IST
Source: hindustantimes.com