The competitors have yet again been surprised by the State Bank of India (SBI), which earlier created hype in the home loan market and this time it has slashed interest rates on loans for new cars. Furthermore, SBI, the country's biggest bank has also reduced its lending rate against warehouse receipts for farmers.

It has come to light that new car loans would be offered by SBI at a fixed rate of 10% for one year, 1.75 percentage points lower than the prevailing rate offered by market leader, HDFC Bank. The rates would be associated with the bank's existing prime lending rate (PLR), following one year. It should be noted here that the 75 basis points (bps) below PLR for a three-year loan of Rs 7.5 lakh and above would be charged to the borrower. An interest rate of 50 bps below PLR would be carried by loans below Rs 7.5 lakh.

It was confirmed by the Banking circles, "The new scheme's success would depend on how the SBI promotes it among auto dealers."

Since most commercial banks offer car loans in the 11.5-13% range, the 10% offer by SBI is the lowest in the industry. It would be worth mentioning here that till now SBI offered new car loans at 11.5-12.5%.

The bank announced the new auto loan on Friday and specified that it is applicable only for new cars.

An SBI official said, "If a borrower already has a car loan with another bank, and if she applies to the SBI, it will be deemed as a loan for the used car. Thus, she may not get the benefit of the new rate."

The 10% auto loan scheme that would be applicable for all types for passenger cars will be available only from February 23 to May 31, 2009.