We think the teaser mortgages have so far had a limited impact on the market. We believe they are unlikely to trigger a great deal of interest from new homebuyers for two reasons.
First, the window is open only until 30 April, and we believe buyers are reluctant to close deals hurriedly in anticipation of falling prices. Second, the monthly instalments are fixed at the existing card rates, not the teaser rate of 8%, so the perceptible advantage to the customer is minimal.
In our view, this is good news from the credit perspective, as step-up instalments are accident-prone.
There has been relative success, however, in acquiring existing loans from other lenders. As our analysis shows, the teaser rate covers the prepayment penalty that a borrower switching out of ICICI Bank or HDFC will have to pay.
This has worked somewhat against ICICI, whose floating rates are probably 100bp higher than the rest, but it has not worked that well against HDFC.
SBI had already launched teaser rates on SME loans and have now extended them to cars and agricultural loans.
This, we believe, should work better than it did for mortgages, because the tenor of these loans tends to be shorter (three to five years for cars, even shorter for SMEs and farmers), and a one-year teaser rate has a significant impact on yields.
Also, the loan disbursement cycles for these loans tend to be shorter, so the limited window is not that much of a challenge.
We believe SBI’s strategy makes sense from the marginal costing perspective. It is earning 4–5% on its excess liquidity of Rs750b–Rs1tr (8–10% of its December 2908 assets), which it is trying to redeploy at 8% yields.
However, from a medium-term perspective, we believe this will damage NIMs as well as push-up credit costs.
We maintain our UNDERPERFORM rating on SBI, as we think ROEs have peaked, and we believe the company will be affected by falling NIMs, slowing non-interest income and higher credit costs. Our 12-month price target is Rs900 based on a Sum of parts methodology.