MUMBAI: State-run lenders are stepping up their loans to home buyers armed with better liquidity and lower rates.
Large public sector lenders such as State Bank of IndiaNSE 1.37 % and Bank of BarodaNSE 0.20 % have launched special schemes to wrest market share away from private banks and home finance companies that are facing a liquidity squeeze and higher cost of funds.
BoB, for instance, has initiated a ‘switch karo, save karo’ campaign which allows customers to switch their home loans without any income proof provided a minimum of 12 monthly instalments have been paid and their credit score is at, or above, 725 points.
“This scheme has started recently as we have received good response so far. It is difficult for us to get customers who do not have a clear income certificate or tax statements. However, a lot of NBFCs have done the due diligence and given loans to this section of the population. Since they have a repayment record, it is easier for us to onboard them at our rates which are lower,” said Virendra Kumar Sethi, head mortgages at BoB.
BoB links its home loan rate to its one-year marginal cost of funding based lending rate (MCLR) which is currently at 8.75%. For credit scores of 725 up to 759, the bank offers home loans at 9%. Compare this, for example, with the 9.75% starting rate offered by home finance company DHFL, according to its website. It is this gap that large PSUlenders want to exploit.
“NBFCs are not scaling up business at the same pace like they were doing before, while we expect to continue growing. We have grown our mortgage book at 17% to 18% in the last two to three years and expect to grow at that or faster adding to our market share,” said PK Gupta, managing director at SBI. Earlier this month, the bank cut its home loan rate on loans up to Rs 30 lakhs to 8.70% from 8.75%. The lender has a Rs 3.80 lakh crore home loan book, the largest among commercial banks.
BoB has also steadily increased its home loan book from Rs 19,500 crore in March 2014 to Rs 51,300 crore in December 2018. “Mortgage business makes up a majority of the bank’s retail assets business because the chances of a credit loss are less, the capital charge on these loans is minimal, and it’s a growing profitable business for us,” Sethi said. The bank has a net NPA ratio of less than 1% in mortgage loans.