ISLAMABAD: Unlike the Ministry of Industries’ intention and proposals made regarding the introduction of a new car financing scheme, the government has postponed the plan keeping in view the rising demand in the auto sector.
According to an official at the Ministry of Industries and Production, the plan was on the cards while directions to draft a plan with the reduction of interest rate had also been given to the State Bank of Pakistan (SBP).
However, keeping the increasing demand of cars and subsequent complaints about delayed releases and issues related to premium etc., the scheme has been delayed.
On the other hand, sources claim that the central bank has reportedly shown reluctance in the new scheme, saying that a considerable portion of financing was already going to automobile and other sectors.
“We have proposed the financing scheme by relaxing interest on loans in the auto sector especially for small cars but the SBP is yet to share its strategy about the proposed plan,” an official at the Engineering Development Board said.
It may be mentioned here that the government is also yet to finalise the Auto Industry Development and Export Policy (AIDEP) 2021-26.
Earlier, during a meeting on the new five year auto policy, Federal Minister for Finance and Revenue Shaukat Tarin had directed the Ministry of Industries and other institutions concerned to prepare a consolidated policy for car financing in the country on fast track.
Though the Ministry of Industries had suggested lowering the interest rate for car financing to five to six per cent, besides offering other facilities, the finance minister had directed to prepare a comprehensive policy keeping in view the policies in other countries of the world.
According to officials privy to the matter, Tarin had also stressed to come up with innovative products for provision of car financing at reduced mark-up rate to consumers so that everyone can afford a car at flexible terms and conditions.
Apart from the financing facility, the government has already announced a reduction in general sales tax (GST) on locally assembled cars up to 850cc to 12.5 per cent from 17pc in the budget 2021-22 (FY22), followed by an exemption of federal excise duty (FED) and value-added tax to give relief to small car buyers.
It may be mentioned here that the existing car financing by banks in Pakistan has already soared to an all-time high of Rs326 billion in August, as financing became affordable for more people in the wake of low interest rates amid the Covid-19 pandemic.
“Figures for car loans in August depicted a 46.8 per cent year-on-year (YoY) jump,” mostly owing to low interest rates; a brokerage said quoting central bank data.
“Car loans increased 3.8 per cent month-on-month (MoM) in August, while they stood at Rs314 billion in July,” Arif Habib Limited said in a report.
“The growth in auto financing during Q3FY21 is mainly attributed to low interest rate environment, increasing prices of passenger cars, which affected the consumers’ capacity to buy on cash, and new entrants in the automobile market that provided wider options to the consumers,” SBP was quoted as saying in its third quarterly report on Pakistan’s economy during last fiscal year (FY21).
This was consistent with an across the board increase in the sales of auto assemblers during the period under review. In particular, cars below 1,000cc and jeeps were in higher demand, the central bank added.
Furthermore, a slowdown in auto financing is expected by analysts due to the high cost of borrowing that the central bank raised interest rates by 25 basis points to 7.25 per cent on Monday to moderate demand growth.
Meanwhile, bank lending to consumers increased to 34 per cent YoY in August whereas consumer loans such as home, car and personal, and credit cards rose to Rs742 billion in August from Rs550 billion a year ago.
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