SBI takes bold, but calibrated step to sustain home loan biz

I do not see a substantial effect on homebuyers. The external benchmark-linked rate has increased by 25 bps since H1. So, the concessions have been adjusted to offset the increase, especially for high CIBIL score borrowers. For others, there is either no change in the concession rates or a small one, says IIM (A) Prof Prashant Das

Mumbai: In what can be termed as a bold move by the country’s largest lender in its bid to stop erosion of its retail home loan segment, the State Bank of India has started giving loans to customers with lower credit bureau score and even those new to credit (NTC). It is luring them with significant concessions over the prevailing card rates.

As part of its ongoing campaign, the bank is offering home loan (HL) and top-up loan to customers with lower credit score (151-200) and those new to credit or with no credit score at all, that too by offering a concession of 65 basis points (bps) and 45 bps, respectively, over the card rates.

On the other hand, SBI is also incentivising the borrowers with a credit bureau score of 700 and above. Not to mention, this score is considered to be a safe bet for the lenders while providing home loans. Keeping it in view, the bank is offering 55 basis points concession on the card rate for customers with credit score of 750 and above, with the effective interest rate working out to 8.60 per cent. Of course, this forms part of its four month ‘campaign rates’ initiative, which started on September 1.

For customers with credit scores of 700-749, 151-200 and NTC/ no credit score, the bank is giving higher concession of 65 basis points over the card rate of 9.35 per cent, with the effective HL interest rate working out to 8.70 per cent. In the case of top-up loans, the bank is giving 45 bps concession over the card rate for customers with credit score of 750 and above, with the effective interest being 9.10 per cent.

Apart from the concession being given on the card rate, SBI will also offer 20 bps additional concession over the above proposed rates for HL takeovers, resale and ready to move properties for customers with credit score of 700 and above. Thus, customers with credit score of 750 and above will get HL at 8.40 per cent. Those with credit score of 700 -749 will get HL at 8.50 per cent.

Customers with credit scores of 700-749, 151-200 and those who are new to credit too will get 45 bps concession over the card rate, with the effective rate of interest rate being 9.30 per cent. The bank will give 20 bps concession over the proposed rates for top-up loans associated with takeover loans (for credit score of 700 and above). The bank has gone for such a bold move as they have already cleaned their slate of NPAs, which has further empowered their aggression. In the home loan segment, SBI has already overtaken HDFC and now runs more than Rs 6 lakh crore loan book.

Talking on condition of anonymity, a senior official of SBI says, “Cibil has put new to credit (NTC) borrowers in two buckets from 100-200, and from as low as zero in the past, depending on geography and occupation etc. So that is why you see these scores are all NTCs.” He emphasised that there was no change in the bank’s norm of giving home loan to any borrower with credit bureau score less than 550.

SBI has held similar campaigns this year in January and some other months. Maybe they feel that since NPAs are low in home loans, they can offer to lower the bar, said a retired senior official of SBI.

SBI’s home loan portfolio grew 13.47 per cent year-on-year (y-o-y) to stand at Rs 6,52,548 crore as on June-end. These loans accounted for 23.13 per cent of the bank’s domestic advances of Rs 28,20,433 crore. But how will the SBI move have its impact on homebuyers?

Talking to Bizz Buzz, Prof Prashant Das, Associate Professor (Finance) at IIM (A) says, “I do not see a substantial effect on homebuyers. The external benchmark-linked rate (EBR) has increased by 25 bps since H1. So, the concessions have been adjusted to offset the increase, especially for high CIBIL score borrowers (700+). For others, there is either no change in the concession rates or a small one (10-20 bps).”

On Rs 35 lakh, 25-year loan, the EMI will increase by around Rs 500-600. However, home prices have been rising slightly faster in the recent two years. So, keeping the mortgage rate frozen could imply more sales for the lenders’ especially from high credit-score borrowers, he added.

According to the data released by the Reserve Bank of India, credit growth, unlike deposit growth which was muted, has been robust in the industry. To elaborate it, the bank credit (excluding inter-bank advances) of the Scheduled Commercial Banks stood at Rs 1,49,20,146.54 crore as on August 25, when compared to Rs 1,24,58,657.89 crore a year ago, reveals the RBI data. It shows a remarkable credit growth.

Welcoming SBI’s move ,Nehal Gupta, Director, AMU Leasing (NBFC), says, “SBI’s initiative to offer special discounts on home loans is a welcome opportunity for consumers during this festive season. With concessions on home loan interest of up to 65 basis points (bps) under a special campaign, SBI is providing an incentive for eligible borrowers to save on their cost of borrowing. We think SBI’s move is likely to impact consumers and the real estate industry in a positive way. Indeed, this move will make it much easier for borrowers to access affordable housing loans and contribute to the overall growth of the real estate sector.”