FADA urges RBI to act on private banks’ delay in auto loan rate cuts

FADA raised concerns about banks issuing direct financial incentives to dealership staff, bypassing dealership accounts, and called for such practices to be halted immediately.

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The Federation of Automobile Dealers Associations (FADA) has urged the Reserve Bank of India (RBI) to intervene in what it described as private banks’ delays in passing on interest rate cuts to automobile borrowers. In a letter to RBI Governor Sanjay Malhotra, FADA said that while public-sector banks transmit repo rate reductions promptly, many private banks delay implementation citing internal cost-of-funds assessments. FADA argued that this undermines the effectiveness of the RBI’s monetary policy and sought time-bound enforcement of rate transmission along with public disclosure of cost calculations to improve transparency.

Challenges pointed out by FADA

The dealers’ body also pointed out that many private lenders are not extending MSME lending benefits, such as concessional interest rates and priority sector classification, to eligible auto retailers despite their eligibility under the Udyam framework.

FADA requested that the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) be extended to authorised auto dealerships and service workshops, which are currently excluded. It also recommended that the RBI lower the risk weight applied to auto loans from the current 100 per cent, arguing that vehicles serve as easily realisable collateral and that this move could stimulate 20 per cent growth in auto loan disbursements over five years.

Additionally, FADA raised concerns about banks issuing direct financial incentives to dealership staff, bypassing dealership accounts, and called for such practices to be halted immediately. The letter further emphasised the need to boost credit access for electric vehicle financing and to improve affordable lending options in rural and Tier 2/3 towns, in line with India’s broader mobility goals.