Sunday, March 1, 2009

Who benefits most by dropping home loan interest rates to 8.5%? SBI!


Retail loans became expensive and often exorbitant which did not help the cause of the economy. This crisis presented an opportunity of sorts to the PSU banks. Customers shied away from investment products and chose to park their money in the deposits of these government-owned banks.

Deposit growth rates were soon soaring in the banking system. Taking advantage of this, SBI first lowered the home finance rates to increase its share of lending to the retail customers.

“Interest rates were expected to soften over the next one year. What SBI has done is to lower its rates ahead of the fall and with efficient structuring of its schemes has attracted attention from consumers”, says Vaibhav Agarwal, Banking Analyst, Angel Broking."


With auto and home loans accounting for a very small part of SBI’s retail loan book, cross subsidisation has been easy which augurs well in the long term. Moreover, PSU banks are flush with liquidity as the deposits have grown at a rate that is higher than that of its advances in the quarter ending December 2008. The loan growth continues to be muted in the current quarter as well.

If PSU banks do not lend, the only option for them is to invest in the call money market and government securities. This would yield a return of at best 6-6.5%. SBI’s offer of auto loans at 10% is certain to fetch them higher returns than other investment avenues.

Things continue to be impressive on the financial front for SBI. For the third quarter ending December 2008, net profit grew 37% to Rs 2478 cr. Similarly, its deposits grew by over a third and its market share increased from 15.47% to 17.51%.

The advances growth stood at 30.9% and with this pace, it is the fastest growing large-scale bank. By comparison, the advances of HDFC Bank grew by just 14.2% and those of ICICI Bank actually showed a marginal decline.

SBI’s business per employee increased by 2.5 times in the last five years. At the same time, the bank has realised that to fund its high growth plans, it would require capital.

Senior SBI officials told ET that the bank would raise around Rs 4,000 crore through a bond issue at an interest rate less than 9% per annum. This would help in improving its capital adequacy ratio.
To read more, please, visit - Prashant Mahesh & Karan Sehgal-The Economic Times

What is your take on switching banks?

In fact, it's better to be with the bank who's financial health is sound! Is this going to motivate you to switch your home loan portfolio from Private Bank to SBI or any Public Sector Bank? Please, share your views in the comments. (Comments Policy)

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1 comment:

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