Mumbai, June 7 Home loan ‘balance transfers’ from private sector banks and housing finance companies are welcome, say public sector bankers. While they are dangling the carrot of soft interest rates to encourage customers from other banks and HFCs to make the switch, public sector banks (PSBs) are not letting their guard down in their quest to grow their retail loan book.
While some PSBs are aggressively pursuing home loan takeovers, yet others are cautious due to concerns over the quality of assets.
Interest rate differential
According to public sector bankers, the switch happens when there is a wide interest rate differential on home loans between PSBs and private sector banks/HFCs.
Consider this: On a Rs 30-lakh home loan of 20 years, PSBs are currently charging a floating interest rate of about 9.25 per cent, while select private sector banks/HFCs are quoting an interest rate of 9.75-10.50 per cent.
It is this interest rate differential that is prompting home loan customers to gravitate from private sector banks/HFCs to PSBs.
A senior IDBI Bank official pointed out that customers would do well to do a through cost-benefit analysis before they go in for balance transfer of their outstanding home loans from one bank to another. The reduction in equated monthly instalments should far outweigh the pre-payment penalty charges (imposed by the old bank) plus the processing fee (imposed by the new bank).
“Public sector bank home loan rates are very competitive. So, when customers who have taken loans from other financial intermediaries realise that there is a wide differential between the interest rate they are currently paying and what we are offering, they seek balance transfer. We grant this facility only after conducting our own due diligence on the customer,” said a senior Corporation Bank official.
According to a senior Bank of Baroda official, the bank is aggressively encouraging ‘balance transfer’ to increase its home loan portfolio. “Our chairman has clearly said that this is an opportunity for us and we are very active in taking over home loans. If it makes sense for the borrower to foreclose the loan with a private sector bank despite paying a penalty, then it indicates that there are reasons strong enough for them to do so,” he said.
State Bank of India, the country’s largest bank, has seen a tremendous rise in applications for takeover of home loans, ever since it launched its special home loan scheme offering loans at 8 per cent, said an official from the bank. “The response has been very positive. It is obviously a way to increase our market share in home loans,” the official added.
For Andhra Bank too a large portion of its home loans has come from take over of loans from private sector banks. As the bank is focusing on increasing its retail loan share, it is actively pushing home loans and even taking over from private banks.
Mr Anjaneya Prasad, General Manager, said, “It is not that we take over the loan of any customer who comes to us. We do make an independent assessment, check the title deeds of the property and carry out all due diligence. As our rate of interest is lower, the customer benefits,” he said.
Being cautious
However, not all public sector banks encourage take over of loans due to the uncertainty and risk involved.
As another public sector bank official pointed out, “If interest rates fall again, there is a possibility that the customer may shift his loan again. We do it (balance transfer), but only selectively.”
Source:The Hindu Business Line