Unsaid behind the RBI decision was a suspicion the loans could expose India's largest public sector bank to systemic risks. A perception that SBI chairman OP Bhatt strongly denies.
The loans are transparent, play within the banks' risk containment measures and are not not built on offering any differential rate, he told FE.
Bhatt said SBI did not offer the loans to someone who has no regular income. Even for those who pass the screening, the bank measures their repaying capacity on the basis of monthly installments calculated at the top of the card rates. When the person can pay on a higher rate and is offered a discounted rate obviously the risk is lower, explained a bank official.
The RBI has mandated a higher risk coverage for the discounted or the teaser loans of 2%, while the others would need to set aside on 0.4% of their capital towards the loan. But not everyone is convinced by SBI's argument. K Cherian Verghese, former CMD of Union Bank said, Any rate of interest you offer customers should be based on your costing and can't be simply a discount sale.
Robin Roy, associate director at PricewaterhouseCoopers said, A long-term loan (housing loans are usually for more than ten years), can create an asset liability mismatch if not handled with care. He said this could happen despite the comfortable presence of low cost deposit base with SBI. He acknowledged that SBI has changed the game and pecking order in the market. It has tried on a new formula to challenge the primacy of HDFC.
RBI data shows the retail loan portfolio of scheduled commercial banks has touched Rs 3,15,862 crore in March 2010. The market has exploded by 20% over 2009.
To play it safe, however, is the HDFC model better Roy thinks so, despite acknowledging the role SBI has played as a newcomer in the housing finance business.
Keki Mistry, vice- chairman and CEO of HDFC said, It is the advantage of a single product company which deals only in home loans that sets his company apart, unlike banks which offer many products. This allows HDFC to offer a whole range of service at a very personalised level.
Customers, Mistry said, judge a company based on the products and services it offers. This includes a whole host of things right from the advise it provides, the comfort on documentation, market information on developers and their projects, their track record, the range of HDFC products available including the pricing, quick processing and disbursement of loans.
Mistry said,Without doubt on almost all these parameters we are way ahead.His data shows he has managed to keep NPA's at less than 1% and also brought down the cost to income ratio year on year.
On the other hand, SBI despite posting a 43% rise in net interest income, faces a Rs 400 crore bill if RBI does not budge. Its NPA is at 1.66%.
But as Bhatt says he has expanded the market with 80% of his loans targeted at ticket size of less than Rs 10 lakh. Both Bhatt and Mistry are serving a market, which has immense potential. Mortgage penetration in the country is just around 8% of GDP compared with Asian countries average of 17 to 35%.