Banks dish out loan sops amid rising rates

Written by Kumud Das | Sitanshu Swain | Mumbai | Updated: Aug 22 2011, 09:36am hrs
Even as serial rate hikes have made loans costlier, banks are competing for retail borrowers by reducing or eliminating processing fees, liberalising eligibility criteria and increasing the loan ceiling in select cases.

Last week, India's largest private sector lender ICICI Bank kicked off a home loan scheme, offering fixed rates for the first one or two years. Meanwhile, State Bank of India, the country's biggest bank has quietly reduced its home loan rates by 25 basis points, and has dropped processing fees for home and auto loans. Leading lenders like Union Bank of India, Bank of Baroda, Indian Overseas Bank and Allahabad Bank have either started offering sops are exploring various options to attract retail borrowers.

Following the Reserve Bank of India's latest policy rate hike, both SBI and ICICI had increased their base rates, or their minimum lending rates, by 50 bps each to 10%.

Said a senior SBI official: We have launched a discounted scheme for home loans and charge 10.5-11% for various categories. The market has been relatively dull for us, since property prices are too high.

SBI has also cut auto loan processing fees by half, which is now down to 0.25% of the loan amount.

The official continued: In certain cases, we are completely waiving processing charges, like loans for buying Maruti cars. Though vehicle sales were dull in July, it has started picking up recently as manufacturers have started offering various discounts.

Mumbai-based Union Bank of India is looking at giving concessions on auto loans for existing borrowers in the range of 1% to 1.5%. However, the bank is yet to finalise the scheme. The bank may relax its loan eligibility norms and increase the total cap in case of mortgage loans and credit for small nursing homes. Said executive director SC Kalia: We are offering a 50% concession in processing charges. Our retail portfolio is currently at 12% and we plan to take it to 13.5% by the end of the fiscal. We are still working on the benefits for retail customers and will finalise them after internal discussions.

Bank of Baroda has no plan for an interest rate rebate. However, chairman and managing director MD Mallya sees scope for changes on the processing front. We are likely to give concessions on processing or documentation charges, he said. Referring to ICICI Bank's recent home loan scheme, he said: I dont think we will have any problem in retaining our market share in the light of the attractive scheme launched by one of our peers. It is evident from the fact that we were able to protect our market share even when SBI was having its special home loan scheme in past, he said.

Indian Overseas Bank, which has a base rate of 10.75%, is looking to waive all processing charges for its retail loans, said chairman and managing director M Narendra. We are making our lending rates attractive. We can always go for a massive advertising campaign about our products during the festive season. Currently, retail comprises 10% of our loan book and we are planning to increase it to 13% during the year, he said.

Allahabad Bank is currently providing a 50% rebate in processing charges for home, auto and personal loans for medical practitioners and the loans given to those employees whose loan installment is deducted from their salary.

In the case of car and home loans, the bank offers a rebate in the range of 1% to 1.5%. Retail comprises 14.5% of the banks portfolio. The bank is planning to increase it to 20% in three years. However, the country's largest mortgage financier sees no need for special offers. Said Keki Mistri, CEO & vice chairman, HDFC: Let me tell you that there is no connection between interest rate and the demand for home for the middle class. Housing loan is long-term in nature, hence it doesnt matter what the interest rate is at the point of entry. We have observed a very good growth in our business during the current year so far and hence we have projected a business growth of 20% for the entire fiscal., he said.