Foreign banks vie for bigger slice of home loan market

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October 07, 2021 12:30 AM

HSBC India reduced home loan interest rates by 10 basis points (bps) to 6.45% per annum. This rate will be applicable on balance transfers by existing customers of other lenders. Citi is offering home loans starting at 6.5% as is South Korea-headquartered Shinhan Bank.

Balance transfers have turned out to be a preferred option for foreign banks as they are easier to source. They are considered safer, too, as the lender gets a snapshot of the borrower’s repayment track record.Balance transfers have turned out to be a preferred option for foreign banks as they are easier to source. They are considered safer, too, as the lender gets a snapshot of the borrower’s repayment track record.

Taking advantage of record low interest rates and higher affordability of homes, foreign banks with presence in India are making an aggressive push into the home loan market. In the run-up to the festive season, some of these lenders have announced lending rates at par with the lowest in the business.

HSBC India reduced home loan interest rates by 10 basis points (bps) to 6.45% per annum. This rate will be applicable on balance transfers by existing customers of other lenders. Citi is offering home loans starting at 6.5% as is South Korea-headquartered Shinhan Bank.

Kunal Sodhani, AVP, global trading center, Shinhan Bank India, said the lender has been offering home loans starting at 6.5% for a maximum tenor of 30 years. The bank has been active in the retail loans segment for the last four years and currently has more than 4,500 customers across six branches in India. “The interest rate trajectory may be at its bottom and also due to festive season being underway, this remains the best time to avail housing loans at such attractive rates,” Sodhani said.

Balance transfers have turned out to be a preferred option for foreign banks as they are easier to source. They are considered safer, too, as the lender gets a snapshot of the borrower’s repayment track record.

Besides, the migration to an external benchmark-linked pricing regime has led to better transmission of lower rates through banks. Forced to link their home loan rates directly to the repo rate or to other external benchmarks, banks have turned more competitive in terms of pricing than their non-bank counterparts. This is another factor driving the rising trend in balance transfers.

Of course, muted credit demand in other segments is also playing a part. Prakash Agarwal, director and head – financial institutions, India Ratings and Research, said while some foreign banks were always active in the home loan market, their presence is increasing for two reasons. “One, there is a limited offtake in other segments. Secondly, this asset class has proven its resilience over time. The credit cost and delinquencies in this segment were among the lowest even during the pandemic. That is an added incentive for lenders to get into this segment.”

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