Once all states implement the Real Estate (Regulation and Development) Act, home loans growth should improve, State Bank of India (SBI) managing director PK Gupta told Shayan Ghosh and Shritama Bose. He also said that the bank’s Yono app, launched last week, has already seen close to 200,000 downloads. Edited excerpts:
Is retail credit, which has been driving loan growth at banks, slowing down?
Retail credit has been holding up quite well, both in terms of growth and delinquency, even though there has been muted demand from the corporate side. Maybe it has slowed down a little bit as compared to last year because of various reasons like demonetisation, Goods and Services Tax (GST) and RERA. However, I think it still continues to be good. Also, since most of the states are implementing RERA, retail credit demand should improve. We as a bank have been seeing around 13-14% (year-on-year) growth in retail loans and this probably can move up by a few percentage points going ahead. In FY18, we expect that retail loans will grow by about 16-18%.
RERA is also likely to bring down the supply of units. Will that cause prices to rise?
From a banks’ point of view, the risks have been mitigated to a huge extent. Earlier, there was a question of oversupply and I don’t think RERA has impacted the demand. Maybe the supply of homes has slowed down a bit. However, whatever is coming into the market is now fully RERA-compliant and, as a result, banks should be in a position to finance those units much faster.
There are reports that unsold inventory may be taxed. What effect could that have?
Even though people say builders are sitting on inventory, they have not been reducing prices. This might force them to offer some discounts and sell. This is a good move because it will help correct the market, which seemed to be overheating. One (impact of RERA), of course, is that only people who are capable of executing the projects will be doing it and no one will start a project unless you have all the approvals. So I think purely from a banker’s point of view and also from a buyer’s point of view, it is a good thing. For instance, there have been project launches in the past where everything was not in place; such things will not happen any longer.
Much of the retail growth is coming from unsecured assets. Is this a worry?
Some of the retail loan growth has been coming from the unsecured assets side. The difference between us and some of the other banks is that they have their credit card business within the bank while we have it as a separate company. So our numbers are not comparable with peers from the private sector and even the public sector banks. Moreover, the reliability of the credit information bureaus has been a great help.
Till a few years back, it was difficult for banks to judge the credit-worthiness (of a customer). The banks are much more confident now and are going ahead with financing even unsecured personal loans, which they were not doing in the past. Most of the banks have also been offering corporate salary packages and, therefore, as most accounts get tied to a bank through such packages, it is easier to lend on the unsecured side.
What could be the impact of linking lending rates to an external benchmark, as suggested by the Reserve Bank of India (RBI) report?
There are two things to be looked at here. As a bank, you have to look at what is the ultimate rate you charge a customer, which you calculate on the basis of your cost of funds. The second, is how the rate changes periodically. At present, the rates are generally linked to the one-year MCLR (marginal cost of funds-based lending rate). What the RBI report has suggested is to link it to a three-month benchmark. I don’t think that should make a huge difference, as far as banks are concerned.
Will it impact deposit holders?
On the deposit side, there are challenges. If you look at the report, it says that maybe banks should be allowed to have floating-rate deposits or all bulk deposits should be linked to a floating rate rather than to a fixed rate. That is a challenge for banks because in India, most of our funds come from deposits. Between 40-45% is CASA (current account savings account) deposits.
Funds from the market are 2-4% for most of the banks. So the impact of any change in the repo rate on the banks’ cost of funds is very limited. For the pass-through, unless the cost changes, you can’t really change rates on the lending side alone. So if we can find a way where our costs as well as what we charge move in tandem, I don’t think banks should have any problem.
You launched the Yono app last week. What has been the response?
We have had close to 200,000 downloads and it has been widely appreciated.