Buying a car or bike on loan may soon become more affordable in India, especially before the upcoming festive season. The Federation of Automobile Dealers Associations (FADA) has written to the Reserve Bank of India (RBI) urging intervention to ensure that private banks pass on the benefits of interest rate cuts promptly to auto loan borrowers.

Why Car Loans May Become Cheaper

FADA pointed out that public sector banks usually implement repo rate cuts quickly, but many private banks delay the benefit, citing internal evaluations. This delay, according to FADA, undermines the impact of RBI’s monetary policy.

They also highlighted that many private lenders are not providing MSME benefits to eligible auto retailers—such as concessional interest rates and priority sector status—even when these retailers are registered under the Udyam portal.

Key Demands from FADA

1. Lower Risk Weight for Auto Loans
   FADA has requested the RBI to reduce the 100% risk weight currently applied to auto loans. Since vehicles can be easily repossessed, a lower risk weight would be justified. This change could potentially boost the number of auto loan borrowers by 20% over the next five years.

2. Inclusion Under CGTMSE
   The association wants auto dealerships and service workshops to be covered under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which would ease credit access for many small auto businesses.

3. Stop Unethical Incentive Practices
   FADA also raised concerns over some banks directly paying incentives to dealership staff, bypassing official dealership accounts. The body has urged RBI to curb such practices immediately.

4. Boost EV Financing in Rural Areas
   The letter emphasized the need to increase financing support for electric vehicles (EVs), especially in rural and tier 2/3 cities, by ensuring affordable and accessible loan options.

What This Means for Buyers

If the RBI accepts FADA’s recommendations, buyers may benefit from:

• Lower EMIs on car and bike loans

• Faster repo rate transmission

• Cheaper financing for electric vehicles

• Better loan access in smaller towns and rural areas