FADA Turns Up Heat On Banks, Asks RBI To Ensure Faster Rate Transmission On Auto Loans

FADA VP noted that while state-run banks swiftly adjust loan rates after repo cuts, private banks often delay, citing internal cost-of-fund calculations.

Sai Giridhar VP FADA, Amar Jatin Sheth Secretary FADA and Saharsh Damani CEO FADA had a landmark meeting Sanjay Malhotra, Governor, Reserve Bank of India, at RBI Headquarters, Mumbai.

Source : Special Arrangement

The Federation of Automobile Dealers Associations (FADA) has written to the Reserve Bank of India (RBI) seeking intervention over what it calls “persistent delays” by private sector lenders in passing on policy rate cuts to automobile buyers.

In a detailed letter addressed to RBI Governor Sanjay Malhotra, the industry body urged the central bank to conduct a review of the repo-rate pass-through in auto loans and ensure private banks are made to comply with the same speed of transmission as public sector lenders, reported PTI.

FADA Flags Repo Rate Pass-Through Delays

“Under your leadership, the RBI has delivered the fastest series of policy-rate reductions in its history, a clear positive signal for the economy. Yet, this benefit is not fully visible in the auto-retail sector,” said FADA Vice President Sai Giridhar in the letter. He added that while state-run banks swiftly adjust loan rates after repo cuts, private banks often delay, citing internal cost-of-fund calculations.

The association asked the RBI to enforce “time-bound transmission of policy-rate changes” across all banks and suggested making banks disclose their cost-of-funds calculations publicly to improve transparency.

Calls for MSME Support and Risk Weight Changes

FADA also raised concerns that private lenders are not uniformly applying MSME lending benefits to eligible dealerships. It urged the RBI to issue guidelines mandating concessional interest rates, priority sector status and better access to MSME-linked schemes for auto workshops, service centres and dealerships registered under the Udyam framework.

Additionally, the letter recommended extending the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to the auto-retail sector. It also called for recalibrating risk weights on auto loans—currently at 100 per cent, much higher than the 40 per cent for home loans—arguing that vehicles are “readily realisable collateral”.

FADA claimed a reduction in risk weights could boost auto-loan disbursements by 20 per cent over the next five years. It further urged the RBI to stop banks from making direct incentive payments to dealership employees, insisting all payouts should flow through authorised dealership accounts to preserve operational autonomy.