One industry that has made tremendous progress after the Reforms is the automobile industry in particular cars & 2-wheelers. Indians are now buying 6 lakhs car a year as against 1 to 1.25 lakh vehicles 17 years ago. Upto the mid-Eighties India was having two leading manufacturers of cars. Indian buyers had long waiting periods to get delivery of vehicles. While rapid development in technology was taking place elsewhere in the world, India was still continuing in the out-moded system of carburetor filled automobiles and obsolete and inefficient engines till Maruti arrived on the scene. Maruti brought new technology to the Indian populace. First and foremost is the engine technology and the associated durability. "Early Indian Automobiles like the Ambassador and the Fiat would need an engine rebuild within the first 40,000-50,000 km or would barely do one summer with the load of an air-conditioner. Nobody bothered to get the latest engine technology; the bodies would outlive the engine manifold. Today, the entire scenario has changed and the latest technology is on hand thanks to multinationals and the engine live as long as the bodies, if not longer and do not require rebuilding for atleast 2-3 lakh km."¹

Thanks to Maruti this sectorial revolution was brought in and the transformation of Indian automobile Industry realised. The disposable income of the booming middle class and the favourable climate created by the Government to attract foreign investments in Indian Industry, enabled major global players like General Motors, Daewoo Motors of South Korea, Ford Motor Company to set their shops in India. The Industry expanded and so did the demand for vehicles. India started exporting vehicles to other Asian, European, African Countries taking the auto industry from the earlier position of a net importer of vehicles to exporter of vehicles made in India.

Simultaneously the motorised-two wheeler industry in India has made equal strides. From a semi luxury product for the urban middle class in the Eighties and earlier, the two wheeler has now become not only the favourite mode of personal transport but also the most coveted personal possession amongst all consumer classes, except perhaps the most affluent. The country saw the advent of national brands like TVS, Bajaj, etc. along with powerful and influential Japanese manufacturers like Honda, Yamaha and Suzuki. Today with an annual sales of 4.3 million units, the Indian two-wheeler market is the second largest in the world after China.

Over the years, the dream of owning a car has been coming true more easily for the country's burgeoning middle class. Among the factors most responsible for this rapid motorisation is not only the available supply of abundant vehicle models, but also the availability of relatively attractive financing options. This has brought vehicle ownership amongst the middle-income groups in the country.

"The change has been made possible by the new found alliance between the car-maker, the dealer and the financier. The fall in interest rates and the juggling of margins between the trio has enabled the car buyer to bargain for lower monthly repayments.

"The falling interest rate regime and the increasing competition in the car finance segment have led to a substantial fall in the cost of funding a car purchase.

"From an effective cost (including processing fees etc.) of 24% on a monthly reducing balance basis six years ago, the rates have crashed to about 8 to 11 per cent now depending on the car model²

"First obvious start to the car purchase process is the selection of the car itself (which model and variant). After the car is selected, the next step is to calculate the amount of car loan that needs to be taken based on the buyer's current savings kitty and his repayment potential.

"Among the Banks and the Companies that are major players in retail car financing are ICICI Bank, HDFC Bank, SBI, ABN Amro Bank, Kotak Mahindra Primus, Standard Chartered Bank, Sundaram Finance and Ford Credit.²

Maruti Udyog has recently concluded an arrangement with State Bank of India and its Associated Banks in an attempt to taking vehicle financing to the masses. The tie-up is with the objective to increase the company's focus on the rural market, where the demand for Maruti's entry level car could increase with the availability of cheaper financing. The advantage of SBI plus Associate Banks is the widest network of branches spread in every nook and corner of the country.

SBI speaks about the advantages of its Car financing scheme as follows:

• Lowest interest rates

• Finance available both for new and for old vehicles

• Longest repayment period of upto 84 months.

• No processing charges.

• No hidden costs or administrative charges.

• No advance EMIs. Some Banks/companies ask you to pay one or more EMIs at the time of disbursement of loan, thereby effectively reducing your loan amount. SBI charges no such EMIs.

• No prepayment penalties. Should you have surplus funds at any time, you can conveniently reduce your loan liability and interest burden.

• Complete transparency: We levy interest on daily/monthly reducing balance method. When you pay one installment, the interest is automatically calculated on the reduced balance thereafter. When you pay interest on an annual reducing balance, as charged by many other companies/banks, the interest amount for the coming year is determined on the amount outstanding at the beginning of the year. You continue to pay interest even on the amounts you repay during the year.

• Permanent employees of reputed establishments

• Professionals and self-employed who are income tax assesses

• Persons engaged in agriculture and allied activities.

Normally a maximum of Rs.12 lacs for new vehicles and Rs.8 lacs for old vehicles. Higher amounts may also be given. The actual amount will be determined based on repayment capacity. A maximum of 2 times the net annual income will normally be sanctioned. Income of your spouse can also be considered provided the spouse guarantees the loan. For the purpose of financing, on-road price of the vehicle is taken into account (i.e. inclusive of one-time road tax, registration and insurance). Thus, SBI provides finance for these expenses also. Other Banks/finance companies do not finance these expenses

• New vehicles: Maximum 84 months

• Old vehicles : upto 2 years old - Maximum 60 months

• 2-4 years old - Maximum 36 months.

The applicant may prepay at will with no prepayment penalty

Other banks also have similar schemes with easy and attractive terms. It is a market where competition and new initiatives to woo the customers are the rule of the day. Consequently retail financing in cars has now turned to be a buyers' market and vehicle financing a lucrative mode of business for the commercial banks, while it is a dependable source of marketing for the automobile manufacturing companies. It is a win-win situation for all participants.

¹"In the fast lane" article by Mr.Titu Dhawan in The Hindu Survey of Indian Industry 2003]
²"Drive off with a Smart Deal - Car Finance Options" article by Mr.S.Muralidhar in The Hindu Business Line dt.27.07.03