To curtail the import bill in the prevailing economic situation, the State Bank of Pakistan (SBP) has come up with a revision of its policy for auto finance, making it more stringent for consumers to avail it from banks.
According to a circular issued by the SBP, the maximum tenure of the auto finance facility is reduced to 3 years from 5 years for vehicles above 1,000 cc engine displacement. The maximum tenure of the auto finance facility is reduced to 5 years from 7 years for vehicles up to 1,000 cc engine displacement.
The recent hike in the policy rate to 13.75 percent by the banking regulator coupled with the 2 years reduction in tenure of auto finance will take the markup rate to the highest level in the banking industry.
The amendment will be applicable, with immediate effect, on new financing facilities where the Banks/DFIs have not granted the approval yet, according to SBP. Over the period of the last few months, the banks’ credit on account of auto finance showed consistent growth from the consumers’ side. In April 2022, auto finance from the banking industry stood at Rs. 367 billion.
It is expected that the markup rate on auto financing will surge to 17 to 18 percent with the fresh changes in the auto finance policy. Moreover, other amendments issued earlier will henceforth be applicable on financing for all locally assembled/manufactured vehicles, including on financing for vehicles of up to 1,000 cc engine displacement and locally assembled/manufactured electric vehicles.
Accordingly, the down payment on vehicles has been increased to 30 percent of the value of the vehicle from 15 percent. The maximum financing amount to a borrower has been restricted to Rs. 3 million.
The SBP circular mentioned that the regulatory treatment of Roshan Apni Car products communicated earlier to RDA participant banks will continue to remain effective.