Carmakers are increasingly looking at tie-ups with public sector undertaking (PSU) banks to revive sales, thanks to their strong distribution networks and lower rate of interest. PSU banks charge between 10-14 percent interest while private banks charge 13-16 percent.

Tata Motors, Hyundai Motor India, General Motors India and Maruti Suzuki are among those which have recently inked exclusive tie-ups. Tata Motors has entered into an alliance with Corporation Bank to finance its passenger car range. It says the bank will offer loans up to 85 percent of the vehicle’s on-road price for upto five years, at 11.75 percent interest per annum.

Hyundai Motor has tied up with Syndicate Bank and Punjab National Bank. According to Arvind Saxena, senior VP, “In the current scenario, there is a need for increased financing options and rationalised interest rates for the benefit of our customers.”

General Motors India has a tie-up with Bank of Baroda. According to S P Agarwal, GM, BoB, “We will provide wholesale financing to GMI dealers and retail financing across the country."

Maruti Suzuki has in the past partnered with PSU banks as well. According to Mayank Pareek, executive officer (marketing & sales), “There is a seachange in the performance of the public sector banks. People's perception about them is slowly changing, giving the banks greater leverage.”

Just a year ago, private banks dominated the auto loan market with a combined market share of about 80 percent. The tide has now turned and the PSU banks are the biggest lenders to retail consumers in the Rs 22,000 crore passenger car and two-wheeler loan market.

PSU banks are collectively lending around Rs 1,000 crore every month in the Rs 1,800 crore auto loan market, while private banks account for the rest.

So, what’s working in their favour? Private banks are turning cautious due to the fear of bad auto loans. And the new tie-ups with carmakers are helping PSU banks gain new market share.

Furthermore, the growth in car sales is coming from rural and semi-urban areas of the country where PSU banks have a high penetration level.