Mumbai: Betting big on economic recovery, public sector banks in India are planning to give a big push to retail loans.
While State Bank of India (SBI), the country’s largest lender, claims to have overtaken Housing Development Finance Corp. Ltd, the largest mortgage firm, and ICICI Bank Ltd (in the case of auto loans), other public sector banks want to take the battle to the backyard of private banks, which have traditionally been chasing retail loan customers.
“Look at the number of new people coming into the bankable bracket. They are earning big, fresh after college,” said Punjab National Bank chairman and managing director K. R. Kamath. “There is a vast opportunity there.”
R.S. Reddy, chairman and managing director of Andhra Bank, said it is not that public sector banks are doing bad in retail space, but that they are rediscovering the space after the crisis. “Everybody was looking at corporate loans. Yields have (been) squeezed there, but retail loans ensure a good return,” he said.
Photo: Hemant Mishra; graphic: Yogesh Kumar/Mint
India’s public sector banks, which account for about 70% of the industry, normally depend on corporate clients, but the economic slowdown in the wake of the collapse of US investment bank Lehman Brothers Holdings Inc. has forced them to change their business strategy. After a severe liquidity crunch, they were flush with money, but corporations were not willing to borrow.
SBI took the lead in formulating the so-called teaser rates to entice home and auto loan borrowers, and when the gamble paid off, other public sector banks followed suit. Teaser rates ensure loans at a cheap rate for the first one or two years, but these can go up depending on the interest rate trajectory in the future.
In the first eight months of the current fiscal year till 20 November, the loans to industry grew 14.2% against 37% in the same period of the previous year. Retail loan growth, too, fell as people held back their purchasing decisions. However, according to public sector bankers, the growth in retail loans was at least 25% and these now account for about 18% of their total advances.
Overall credit growth in the industry fell below 10% in December, but bankers argue that had there been no growth in home and auto loans, the loan growth in the system could have been abysmal. They also claim that the loan growth of the industry has come down because of private and foreign banks.
“Public sector banks have lent Rs19,820 crore during the year despite property prices being on the rise in metros,” a senior banker said on condition of anonymity, quoting Reserve Bank of India data.
Many private and foreign banks are curtailing retail loan exposure and shrinking their balances sheets. ICICI Bank, the largest private sector lender, is one of them.
While banks such as Andhra Bank, which saw its retail loan growth at 40% in the quarter ended 31 December, want to focus on their own customer base, others such as Central Bank of India want to acquire new customers to increase their low-cost current and savings accounts and bring down their cost of capital.
This, argues Central Bank’s chairman and managing director S. Sridhar, will make the lender become “truly a full bank—offering all range of products to the customers”. Central Bank’s retail loans comprise 10% of its advances.
SBI, which has a partnership with GE Capital India, would continue its thrust on retail banking operations, a bank official said but declined to be named. SBI is the first among public sector banks to identify the prospects of this area and the bank now has the highest number of credit cards outstanding of around three million, the official said.
Retail loans are going to be a major thrust for Union Bank of India, and keeping that in mind, the bank has opened several dedicated branches for retail loans, said S.L. Bansal, general manager (retail). The bank’s retail advances grew 21.06% in the quarter ended December while its advances grew 14.6%.
Homes in India are still under-owned and that is a space where there is very less default, because, “defaulting on the home loan will be the last option to an Indian borrower”, said R.K. Bakshi, executive director of Bank of Baroda. The bank’s retail loans constitute 19% of its advances portfolio and grew at the same pace in the third quarter.
Bankers say the slowdown year has given them a serious experience in retail activities and they are now treating retail as a “mainline credit avenue”.
SBI’s home loans grew 29.26% in the quarter ended December, compared with a year ago. Auto loans grew 46.35% and education loans grew 31.9%.
The lenders say they do not need to introduce new products for retail customers and the existing products are more than enough to meet the aspirations of retail customers.