Maruti Udyog, India’s largest car maker, and government-run State Bank of Indore have entered into a car financing alliance to push vehicle sales in two central Indian states, Dow Jones reported.


The report said that, as part of the contract, Maruti Udyog, in which the federal government last month sold a 25% holding in an initial public offering, plans to use the State Bank of Indore’s network of 360 branches in Madhya Pradesh and Chhatisgarh states to drive its sales.


“This alliance will give strength to our efforts to make cars available to more people in the country,” Maruti’s managing director Jagdish Khattar said, according to Dow Jones, which noted that Khattar didn’t detail Maruti’s sales prospects in the two states.


Dow Jones said that Maruti, in which Japan’s Suzuki Motor has a controlling 54% holding, is focusing on fuel-efficient, low-cost small cars to improve its market share and has already tied up with the country’s largest commercial bank, the State Bank of India, to boost sales in urban India.


According to the report, the State Bank of Indore will extend credit for seven years to lower the burden on consumers. Normally, vehicle finance companies give loans for up to five years. Further, the bank will charge no processing fees on the loans, Dow Jones added.


A Maruti Udyog statement cited by Dow Jones said the interest charged will vary depending on the tenure of the loans but no penalty will be levied in the event of early repayment.


Dow Jones noted that car sales in India have surged due to the availability of cheap credit and lowering of excise duties to 24% from 32%. In the first quarter ended June 30, passenger car sales were at 149,701 units, up 31% from the same quarter a year ago, the report added.


Dow Jones also noted that Maruti Udyog has a virtual monopoly in the below-$US6,000-a-unit small car segment and close to a 55% share of India’s car market.