LESS PRESSURE: This may dampen the demand for new home and automobile purchases during the fag end of the year
Taking advantage of the liquidity crisis among the non-banking finance companies (NBFCs), banks have decided not to spread the festive cheer to retail customers this year by giving discounts on their home and car loans. This may dampen the demand for new home and automobile purchases during the fag end of the year.
With the NBFCs putting their home loan portfolios on sale for a discount, banks are in the comfort zone of growing their retail segment inorganically. Besides being left with the option of buying out the mortgage portfolios of NBFCs, banks are seeing credit demand coming from corporates.
With credit growth seeing a revival and deposit growth lagging behind, bankers say there is little reason for them to reduce interest rates on home and car loans. This is particularly true in a scenario when interest rates are tending to climb. Since April this year, most banks have raised home loan rates on at least three occasions.
"Competition from the NBFCs is absent and interest rates are rising. Banks are under no compulsion to give special festive offers," said Harsh Roongta, a Sebi-approved financial planner.
According to the Reserve Bank of India (RBI) data, credit growth for commercial banks rose 11.3% higher than the previous year while deposit growth was sagging at 10%.
Keki Mistry, chief executive officer at HDFC, the country's largest housing finance company outside banks, said, "There are no Diwali offers this time. Interest rates are hardening and we have not given any discounts."
Though a few banks like State Bank of India (SBI) and Bank of Baroda (BoB) have eased their processing fees, they have shied away from offering interest rate discounts. While SBI has waived off the processing fee on home loans, BoB has capped it at Rs 7,500. The relaxation in the processing fee for both the banks will continue till the end of December.
For customers with a higher credit score rated by Cibil, BoB prices its home loans lowest at 8.65%. For customers with lower scores, the rate of interest on home loans can go up by 0.50% to 1%.
"Our home loan pricing is the lowest in the market, and is based on the Cibil scores. Except for capping our processing fee at Rs 7,500, we have not introduced other discounts this festive season," a senior BoB official said.
For banks, credit demand is no longer secluded to the retail loan segment. According to the RBI data, loans to the industrial sector turned positive this fiscal compared to deceleration in the year-ago period.
Higher demand for credit from industries is allowing banks to stay firm on their retail loan interest rates. Until a year back, the retail segment was the mainstay of bank credit growth.
"Liquidity issues dog the market. NBFC mortgage portfolios are up for grabs at steep discounts. This is helping banks to go slow on their retail loans," a banker said.
GREEN SHOOTS
- With credit growth reviving and deposit growth lagging, bankers say there is little reason to reduce interest rates
- Since April this year, most banks have raised home loan rates on at least three occasions
- 11.3% – Credit growth for commercial banks; while deposit growth was sagging at 10%
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