The Indian banking industry comprises of 70% of the public sector banks (PSBs). Earlier, before the economic slowdown in the wake of the collapse of US investment bank Lehman Brothers Holdings Inc. the public sector banks generally depended on corporate clients, but now they are changing their business strategy. More and more public sector banks in India are getting into retail loans.
At present the banking industry has surplus liquidity and loan demand from corporates is very low therefore PSBs are moving to retail loans. Recently State Bank of India (SBI), the country’s largest lender has claimed that it has overtaken Housing Development Finance Corp. Ltd, the largest mortgage firm, and in auto loans segment it has overtaken ICICI Bank Ltd. Other public sector banks are also trying hard to take over private banks, which are having hold over retail loan customers.
Punjab National Bank chairman and managing director K said, “Look at the number of new people coming into the bankable bracket. They are earning big, fresh after college.” R. Kamath. “There is a vast opportunity there.”
R.S. Reddy, chairman and managing director of Andhra Bank said the public sector banks are not doing badly in retail loan, but they are trying to take over the hold of retail loans again after the crisis. He said, “Everybody was looking at corporate loans. Yields have (been) squeezed there, but retail loans ensure a good return.”
SBI was the first bank to launch teaser rates to attract home and auto loan borrowers, on seeing the trick working efficiently, other public sector banks followed the suit. Under teaser rates the interest on loans is low for the first one or two years, but in future if there is any increase in the interest rate these rates can also increase.
However in the first eight months of the current fiscal year till 20 November, the corporate loans had grown by 14.2% as against 37% in the same period of the previous year. But, due to recession in jobs people held back their purchasing decisions which badly affected the retail loan growth. According, to public sector bankers, the retail loans had grew by at least 25% but now these are about 18% of their total advances.
Moreover in December there has been decline in the overall credit growth in the industry, bankers say if there had been no growth in home and auto loans, the loan growth would have been very bad. They also said that decline in loan growth can be seen in private and foreign banks also.
According to anonymous senior banker as per Reserve Bank of India data, “Public sector banks have lent Rs19,820 crore during the year despite property prices being on the rise in metros.”
Now many private and foreign banks are cutting down their retail loan exposure and shrinking their balances sheets including ICICI Bank, the largest private sector lender.
Andhra Bank, in the quarter ended 31 December had witnessed 40% growth in retail loan segment and now it want to focus on their own customer base. The other bank such as Central Bank of India is focusing on acquiring new customers to increase its low-cost current and savings accounts and also bring down their cost of capital.
According to Central Bank’s chairman and managing director S. Sridhar, with this the lender will become “truly a full bank—offering all range of products to the customers”. Currently Central Bank’s retail loans comprise 10% of its advances.
An anonymous SBI official informed that bank in a partnership with GE Capital India will continue to focus on retail banking operations. The official added, SBI is the first public sector bank to foresee the positive aspect of this area, and now the bank has the highest number of credit cards outstanding of around three million.
Even Union Bank of India main focus will be on retail loans, and in view of this the bank has opened several dedicated branches for retail loans, informed .L. Bansal, general manager (retail). in the quarter ended December bank’s retail advances had grown by 21.06% and advances grew by 14.6%.
In India home loans are still under control and the default in these loans is very low 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 comprise 19% of its advances portfolio and in the third quarter there was no change in its growth pace.
Bankers said they have gained experience in retail activities during slowdown year and now they are taking retail as a “mainline credit avenue”.
In the quarter ended December SBI witnessed growth of 29.26% in its home loan segment in comparison to a year ago. The growth in auto loan accounted to 46.35% and education loans grew 31.9%.
According to lenders at present there is no need to introduce new products for retail customers and their existing products are more than enough to meet the requirements of retail customers.