Banks hedge bets on retail loan rebound

On the autobahn, sentiments can lift markets but not sales. The reason is not far to seek – slowing demand, rising fuel prices, upward revision of prices by manufacturers and financial insecurity among buyers.

The results are evident from the downward revision in growth estimates for the automobile industry for 2012-13 by the Society of Indian Automobile Manufacturers (SIAM). After the discouraging numbers for the first months of the year, when the industry recorded negligible 3.62 per cent growth compared to the same period last year, SIAM has now estimated full-year growth at 5-7 per cent, down from 9-11 per cent that it put up in July.

The modest decrease in interest rates on vehicle and home loans need not necessarily spur automobile sector growth, bankers noted.

The Managing Director and Chief Executive Officer of Kerala-based private sector lender Federal Bank, Shyam Srinivasan said that the recent slew of reforms have triggered enthusiasm but problems haven’t disappeared.

“The underlying issues haven’t changed,” he said, adding that people need to feel confident about jobs, salaries for discretionary spends to really gather momentum. “It will make them feel confident to service debt, mere reduction of interest rates is not enough.”

Srinivasan’s counterpart at Mangalore-based Karnataka Bank recently said, “We do see some impact of such interest rate cut, say about 10 per cent, but not beyond that.”
However, Srinivasan said that mere reduction in interest rates is not sufficient to step up discretionary spends. “People won’t buy an elephant just because it is cheap.”

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