Tata Finance has increased the rates on the Safari to 10 per cent for a three-year loan tenure. The model, which has been hit by reports of technical snags, was earlier being offered at 8 per cent. Similarly, the rates on Sumo have been increased to 11.25 per cent with a two per cent prompt payment rebate.

The Sumo was earlier offered at 9.25 per cent, but without any prompt payment rebate.

Similarly, interest rate on commercial vehicles have been increased to 11 per cent from 9 per cent. "The move is aimed at adjusting to current market conditions," company sources told The Financial Express.

However, unconfirmed reports suggest thatTata Finance's move is a fallout of Telco reducing or eliminating the subvention amount in its arrangements with the financier. Telco was earlier offering an unknown subvention amount to Tata Finance to keep interest rates low. It has been working closely with Tata Finance in structuring cheap finance schemes as a tool to push sales in a sluggish market.

The first quarter is normally a dull month for automobile sales and volumes are often low. Continuing cheap finance may not be viable in low-volume months. This could have influenced Telco's decision. A general increase in interest rate during the period from January to March too may have influenced the Telco's move.

However, the Reserve Bank's latest move to cut the bank rate by 50 basis points is expected to bring about a corresponding reduction in interest rates.

However, Tata Finance may not roll back the two per cent hike. Instead, it would consider the possibility of introducing more flexibility into the structure of its current schemes, it islearnt.

Telco had started the current calendar year with five per cent scheme for its pre-September, 1997 stock of commercial vehicles. This move had forced competitor Ashok Leyland and others too to follow suit. The cheap finance was also aimed at increasing sales during the year end.