Booster dose

Tags: Banking

The home loan segment is turning hot for banks as they focus on retail loans to grow their loan books. And the ensuing competition has resulted in lower interest rates and other concessions for the customers too

Booster dose
Banks are focusing on growing their retail loan books, nearly half of which comprise home loans, as demand for corporate loans remains sluggish. Beginning July, banks have begun easing interest rates on home loans, waiving processing fees and hosting property exhibitions to pep up home loan demand.

State-owned IDBI Bank reduced home loan rates by 0.25 per cent in November to make them competitive. Home loans of up to Rs 75 lakh are available at par with IDBI Bank’s base rate at 10.50 per cent, while those above Rs 75 lakh are charged 0.25 per cent more in interest over the base rate. State-run Dena Bank also has scrapped processing fee on housing loans for a limited period till December 31.

On the same lines, the country’s largest lender State Bank of India (SBI) in October lowered its processing fee on home loans by 50 per cent up to December 31. The processing fee has been slashed to 0.125 per cent for loans up to Rs 25 lakh or Rs 1,000, whichever is maximum, compared with 0.25 per cent earlier. The bank has also announced a flat processing fee of Rs 1,000 for all takeover loans.

With a base rate of 9.75 per cent, SBI’s base rate is one of the most aggressive in the banking system. It offers home loans at 10 per cent for loans up to Rs 30 lakh and 10.15 per cent for loans above Rs 30 lakh. The bank’s efforts are paying off with it acquiring Rs 800 crore worth of home loans in the first two months of the third quarter (October-November) from rival banks and housing finance companies. Customers with over Rs 400 crore of home loans have shifted to SBI in November alone to avail the benefit of its lower interest rates. “Home loan is certainly one of our focus areas now,” says Pratip Chaudhuri, chairman, SBI.

SBI, which had a market share of 26 per cent in home loans in September, with home loan book of Rs 1,08,381 crore (Rs 87,996 crore of which came through sub-Rs 30 lakh loans), has mopped up Rs 1,419 crore in October, to close the month at Rs 1,09,800 crore.

A Krishna Kumar, managing director and group executive, SBI, said, “We expect a growth of 18 per cent in retail home loans that is a good growth. We are growing across (income) segments. The growth is coming mostly from smaller towns and cities.”

In the race to acquire more customers, ICICI Bank, the largest private sector lender, launched a home loan product in November that provides 1 per cent cash back on every equated monthly instalment (EMI). The product will remain open up to December 31. ICICI Bank had launched a festival offer in the second week of October by reducing home loan rates up to 1 per cent. The new rates of the bank are at 10.5 per cent for loans above Rs 30 lakh and 10.25 per cent for loans up to Rs 30 lakh. The bank has also done away with a special slab of over Rs 75 crore floating rate loans under this scheme. The offer, which is on till the end of December, also reduces the processing fee by 25 basis points to 0.25 per cent. Additionally, the bank is also offering a personal accident cover with every home loan.

ICICI Bank’s retail advances saw an year-on-year increase of 14 per cent to Rs 93,330 crore as on September 30, compared with 10.3 per cent growth as on June 30. The bank’s home loan business constituted 66 per cent of the retail loan book.

Several banks, such as Axis Bank, Central Bank of India and Corporation Bank, are organising property exhibitions to make themselves more visible to prospective home loan borrowers. LIC Housing Finance continues to focus on dual rate home loans at 10.7 per cent, while Axis Bank is offering a home loan product with a built in EMI waiver scheme, under which, the bank proposes to write-off the last 12 instalments if a customer existing with the bank for at least 15 years. Central Bank of India plans to hold realty exhibitions in 100 cities and is looking to cloak a total home loan business of Rs 10,000 crore by March 2013.

MV Tanksale, chairman and managing director, Central Bank of India, said, “Home loan business would remain our prime focus. As on September 30, our home loan business touched Rs 6,800 crore and by March 2013, we are targeting to add Rs 4,000 crore business. Hence, we can achieve the target of Rs 10,000 crore by end of this financial year.”

On similar lines, Corporation Bank is aiming to provide Rs 7,000 crore home and auto loans by March 2013. To achieve this target, the bank is organising property expos across the country and is offering home loans at base rate (10.5 per cent) with no processing charges to customers at the expo. SM Swathi, general manager (Delhi circle), Corporation Bank, said, “The retail book is 17-18 pr cent of the loan book, which we want make it to 20 per cent by March-end. The bank expects to achieve 40-48 per cent growth in retail portfolio, including home and car loans during the year.”

According to RV Verma, chairman and managing director of National Housing Bank (NHB), the demand for retail home loans continues to be robust. “Loan disbursement has seen a good 20 per cent growth for 2012-13 from 17-18 per cent in 2011-12. The housing finance companies grew by 19.8 per cent, while banks with share of 70 per cent of the business grew by 16-17 per cent. This year, both (housing finance companies and banks) are growing by 20 per cent. With the lowering of interest rate, the environment has become competitive and we don’t rule out a rate war between banks and housing finance companies,” Verma said.

Retail home loans had lifted HDFC’s net profit by 18.5 per cent to Rs 1,151 crore in the second quarter ended September 30. For the half-year ended September 30, HDFC’s loan book stood at Rs 1,55,128 crore, against Rs 1,26,992 crore a year ago. About 78 per cent of the increase in loan book in the April-September period was because of individual loans, where an average loan is about Rs 21.5 lakh. To drive growth, HDFC had said that it would continue to focus on home loans where the ticket size is small and, therefore, relatively less impacted by any slowdown in the macro economy.

According to a recent report from Kotak Institutional Equities, the difference between the new home loan rates offered by SBI (10-10.15 per cent) remains high, compared with approximately 11 per cent-plus charged to the existing customers of HDFC.

“Banks and housing finance companies do not charge a prepayment penalty (as mandated by the regulator), thereby making their portfolios more vulnerable to prepayment. The gap between the rate of interest offered to the new and existing home loan customers increases (though marginally) after the recent reduction in home loan rates. To reduce prepayment in its portfolio, HDFC offers its customers the option to shift to a lower home loan rate. HDFC levies fees of 0.5 per cent of the total outstanding to shift from a higher floating rate benchmark (11 per cent) to a lower rate (10.5 per cent),” says the report.


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