The Reserve Bank of India’s 25-basis-point repo-rate hike will not stop festive auto growth. However, protecting buyers from higher costs could cost lenders and automakers ₹1,000 crore. Experts said, "The 25 bps repo rate hike is unlikely to derail festive-season auto demand immediately." Dealers now expect deeper discounts to boost sales.
The Reserve Bank of India's 25-basis-point repo-rate hike, from 5.25 per cent to 5.50 per cent, is unlikely to derail festive auto growth, but protecting buyers from higher borrowing costs could cost automakers and lenders nearly ₹1,000 crore over four years, according to estimates by auto and BFSI industry experts who spoke to businessline.
The calculation assumes manufacturers and financiers absorb around half the incremental financing cost across roughly one crore two-wheeler loans, 20 lakh passenger-vehicle loans and 10 lakh three-wheeler loans. The actual cost will depend on financing penetration, lender pass-through and the extent to which manufacturers subsidise interest rates.
Small hit for buyers
For individual buyers, the impact is modest. Assuming full transmission, an illustrative ₹1-lakh two-wheeler loan at 12 per cent for four years would cost about ₹12 more a month, or roughly ₹590 over the tenure. A ₹3-lakh three-wheeler loan at 15 per cent would cost about ₹38 more monthly, or around ₹1,830 over four years.
For a ₹10-lakh car loan at 9 per cent, the increase works out to about ₹120 a month, or ₹5,700 over four years. The relatively small individual impact is one reason industry executives do not expect the hike by itself to derail festive demand.
"The RBI repo rate hike might seem like an immediate dampener of the upcoming festive season. Right now, with the sales curve on an upswing, automakers will not want something like this to act as a speed breaker," said Avik Chattopadhyay, an auto-industry expert and co-founder and partner at Expereal.
Discounts may deepen
Chattopadhyay expects the response to show up at dealerships. "Prospective customers will surely expect better deals at the dealerships. Already, the festive discounts have started. They might get deeper."
Passenger-vehicle dealers entered October with around 43-45 days of inventory, adding pressure to convert festive enquiries into sales. September retail sales rose 33.08 per cent year-on-year for two-wheelers, 22.25 per cent for three-wheelers and 32.10 per cent for passenger vehicles.
2W and 3W buyers are more sensitive
The pressure is potentially greater in 2-wheelers and 3-wheelers, where financing and monthly cash flows play a larger role in purchase decisions.
"The 25 bps repo rate hike is unlikely to derail festive-season auto demand immediately, but it does put some pressure on affordability, particularly in two- and three-wheelers where financing is a key purchase driver," said Uday Narang, Founder and Chairman, Omega Seiki Mobility.
Bharath Rao, co-founder and CEO of Bengaluru-based electric two-wheeler maker EMOBI, said festive demand in the two segments is supported by both aspiration and utility. Consumers, however, are likely to scrutinise monthly outgoings and overall ownership economics more closely as borrowing costs rise.
For electric two- and three-wheelers, lower running and maintenance costs provide an additional cushion. Rao said this becomes particularly important for commercial three-wheelers, where buyers assess how quickly operating savings allow an income-generating vehicle to pay back.
"A repo rate hike could cool festive auto demand at the margin, but it is unlikely to derail the sector's growth trajectory," said Dr Veer Singh, Managing Director, Kallords Technology. The immediate pressure would be felt in two-wheelers and commercial three-wheelers, he said, while lower EV running costs and total-cost-of-ownership economics could partly offset higher EMIs.