By Nupur Anand and Swati Bhat
MUMBAI (Reuters) – Maruti Suzuki, Hyundai and Mercedes Benz are offering Indian car buyers “teaser loans”, a move that sources said followed a softening of the central bank’s stance due to a coronavirus-induced economic slump.
Although the Reserve Bank of India (RBI) never banned teaser loans, which offer low interest rates for a limited period before jumping, its obvious disapproval has kept banks from offering them, bankers said.
Maruti Suzuki, Hyundai and Daimler’s Mercedes Benz have all teamed up with banks to offer purchase schemes involving teasers.
Maruti Suzuki India was hopeful there would be “an uptick in demand”, company executive Shashank Srivastava said, adding that customers had shown a clear desire for “flexible financing”.
Martin Schwenk, CEO of Mercedes-Benz India, said the schemes would help in “reinstilling customer confidence”.
Hyundai and the RBI did not answer requests for comment.
The RBI has previously said the terms on such loans are not transparent.
Five banking sources said lenders and automakers agreed that promotional teaser loans were needed to revive sales, which automakers say could fall as much as 45% this fiscal year.
“People will require some easier terms due to COVID-19 and thereafter they can pay higher,” one of three sources aware of the RBI’S change in position said.
Banking sources also said the Finance Ministry was pressuring banks to increase lending, although they are already saddled with over $120 billion of bad loans.
The ministry did not immediately respond to a request for comment.
The retail head of a private bank considering a similar scheme said there was huge demand from the market: “After all, what other option do we have right now?”
A banker at a state-owned lender said his bank was considering using teasers to attract mortgage borrowers.
A Mumbai-based ex-banker said there was a risk that teaser loans could become bad loans: “Both the bank and the borrower should be aware and beware.”
(Reporting by Nupur Anand and Swati Bhat; Editing by Alexandra Ulmer, Simon Cameron-Moore, Alexander Smith and Kevin Liffey)