Monday, November 23, 2009

Banks taking time for sanctioning loans, companies go for commercial paper

Banks are taking time to sanction loans. In the last one and half months the actual disbursement of loans have been very low, whether it is for short-term working capital or long term loans. The reason may be the borrowers with working capital requirements have found commercial paper as an alternate source for funding thus they are not using their entire sanctioned bank limits.

Regarding sanctioning of term loans, banks are taking long time to disburse loan as the bulk of sanctioned loans will be used for long-term infrastructure projects, unlike what used to be in the past. As a result this year in October, the banks lend around Rs 29,000 crore, the first month of the professed busy credit season, as against huge amount of Rs 1 lakh crore in the corresponding month of 2008.

However it is not possible to determine the size of unused sanctioned loans, but bankers presume that the total sanctioned loans to companies collectively can be estimated to Rs 2 lakh crore. According to a top banker, if the banks lend 10-15% of their respective sanctioned limits, the credit can pick up considerably.

Till then, banks are greatly dependent on retail credit loans to small and medium enterprises and agricultural loan disbursement for registering credit growth.

As for corporates with working capital requirements, commercial paper (CP) has become the most preferred fund raising instrument. Fund picked up via CPs for six months helps company to get good credit history around 5% a year, as against to 8-9% interest on bank loans. Thus it is clear that anybody can use the CP route for funds instead of going for working capital loans from banks, informed IDBI Gilts head of tresury S Raghavan.

Basically banks are facing the heat because of two reasons. In addition to their latest keenness for instruments like CPs or external commercial borrowings (ECB), the volume of the sanctioned bank term loans are not being disbursed due to higher growth period.

There is major gap between sanctioned loans and actual disbursement. Punjab National Bank chairman and managing director KR Kamath pointed out in case of term loans majority are taken for infrastructure projects, which generally have higher growth.

Whatever the reason may be, clearly fall in credit disbursement has pushed banks to their back foot. Now many of the lenders have to lend at rates which is below their cost of funds, due to this pressure on their interest rate margin is also increasing. Thus it is better to organize fund somewhere rather than to keep it idle, said a top official with a Mumbai-based public sector bank. There has been significant growth in country’s industrial output. Also banks credit growth has been slow. Thus it clearly indicates that companies are going for alternative sources of funds for investments or for their working capital requirement, Dena Bank executive director Bhaskar Sen pointed out.

In the beginning companies use their own resources to build a project, or erect a factory, in order to minimize the cost-carry. Due to this the growth period for bank loan disbursement gets longer, said Allahabad Bank executive director JP Dua.

Friday, November 13, 2009

Pre-owned car loans to be offered at 9 percent by Syndicate Bank, M&M

Pre-owned car loans will be offered by Mahindra FirstChoice in a tie-up with Syndicate Bank. Mahindra FirstChoice Wheels is a multi-brand pre-owned car company of auto major Mahindra and Mahindra (M&M). The loan will be offered at an ‘industry first’ nine percent.

Shubhabrata Saha, CEO of Mahindra FirstChoice said pre-owned car have been an unorganized sector and pre-owned car loans rule at an interest of 16-17 per cent. Saha told Business Line, "Only 10 percent of the pre-owned market is in the organized sector and this small base allows us to work our way around with this sub-10 percent loan scheme. This is an entirely new ball game".

As the demand for pre-owned car has been projected to be very high thus Mahindra FirstChoice has confidently launched the ultra low-interest loan campaign with Syndicate Bank. In India the ownership ratio of new cars to pre-owned cars at present stands to 1:1. While in the U.S. and other western countries the ratio ranges from 1:2 to 1:2.5. And now India is also heading in this direction. It is believed the very low car ownership for every thousand people and profit from demographic dividends together is responsible to build a huge constrained demand in the market.

Wednesday, November 11, 2009

Future Group plan to offer loan, insurance cover at Big Bazaar

Kishore Biyani’s Future Group has revolutionized organized retailing in the nation, is stepping up his move to convert the group into a retail financial company. Working on this line the group is planning to exploit the millions of customers by offering schemes that walk into his stores to buy day to day grocery and clothing.

So, next time there can be chances that you might get a loan offer to buy a refrigerator or an insurance policy for your family when you pay for Aashirvad aatta at Big Bazaar, or a Proline tee-shirt at Pantaloons.

By giving such offers it is believed sale of consumer loans and investment options of Future Capital Holdings in the Big Bazaar, Central and Pantaloon shops will revive the financial services business that had failed to take off after a big hit in the initial stage of public offering during the bang. The group has also planned to launch credit cards with the nation’s largest card issuer, ICICI Bank but it did not take off. When ICICI Bank spokesperson was contacted in this regard, he refused to comment.

Kishore Biyani, Group CEO of Future Group explained, “The business will go through a virtual integration with retail because of the synergies of a common consumer”.

To explore the business the group hired former Goldman Sachs Group Inc executive Sameer Sain as vice-chairman and CEO of Future Capital Holdings and economist Roopa Purushothaman, who in 2003 gave her report on the same financial services firm, and had forecasted the emergence of BRIC nations as the next global growth drivers, to carry on its financial services business. But due to economic crisis the market crashed and the plans did not materialize as forecasted. Now the group is re-working on the plans.

Following this a common group Retail Financial Services team, has been formed which include finance and retail staff from Future Group, Future Capital Holdings (FCH) and Centrum Capital, a broking and wealth management firm where Future group holds stake, with common targets.

The group will incorporate the credit and personal investment products offered by FCH such as consumer loans, stock investing, forex and wealth management products from Centrum Capital and insurance products from the group’s joint venture, Future Generali, all on a common platform. The newly incorporated platform will directly extend to millions of customers that Future Group’s retail formats annually attract.

“What we have decided to do is closely integrate retail operations and the consumer financial services by creating common teams with joint targets,’’ said Sain. ``This will lead to better cohesion and collaboration to take advantage of the vast number of future group customers.’’

The group has not yet taken any decision to discard plans of launching a credit card in association with a bank which makes the concept of cross-selling easier. For instance, financial majors such as State Bank of India and ICICI Bank are in selling of slew of financial products from plain vanilla deposits, to stock trading, to insurance to mutual fund investments to even currency and other exotic derivatives to corporate clients helping them to earn thousands of crores in fees.

Future group cannot possible become a bank due to regulatory hurdles but it can grow in other areas of finance.

Friday, November 6, 2009

Banks likely to continue with special home loan schemes

Although in its monetary policy review the Reserve Bank of India has clearly signaled exit from its year-long accommodative monetary policy, still the major public and private sector banks appear to continue with their cheaper home loan schemes for some more time.

Country’s second largest lender, Punjab National Bank has extended its ‘Festival Bonanza Offer-2009’ for housing and car loans up to December 31, 2009. Also country’s largest lender, State Bank of India possibly continues its special home loan scheme offered at an interest rate of 8% starting from Rs 5 lakh. Although bank has not said anything on extension of the tenure of the scheme, it is believed that the scheme will continue beyond November 7, as it was the deadline given by the SBI.

An anonymous bank official told ET that bank’s home loan sector has grown by 30% at Rs 8,300 crore during the first half of the current financial year. While the bank has projected a growth of 33-34% by the end of the current financial year, according to which the home loan segment should grow by Rs 18,000 crore by the fiscal-end. Home loan cover 12-13% of the entire loan book of the bank.

As per its festival offer, PNB is extending housing loans up to Rs 30 lakh at a discounted interest rate of 8.50% per annum (fixed) for first three years and 2-2.5% below BPLR in subsequent years of loan tenure under floating option. Apart from this, the bank is also offering complete waiver of processing fee and documentation charges on housing loans up to Rs 30 lakh. Even the margin has been reduced to 15% on housing loans up to Rs 20 lakh .

The bank has also announced cut in the interest rate on car loans by 50 basis points along with relaxation in processing fee & documentation charges.

The NIM has been affected due to special home loan scheme, but bank’s main concern was about the fact that there was droopiness in credit pick-up during the first half. Moreover bank’s main focus is on putting more funds in those lending schemes which are getting popular day by day and home loan is one of them. A SBI official pointed out that there is increase in interest in home loan market.

On the other hand Axis Bank, the third largest private sector bank is aggressively promoting its home loan, which it is offering at an interest rate of 8% for the first year. And from the second year onwards, bank will charge floating rate of interest based on the bank’s mortgage reference rate. As per current MRR, the rate for the second year and after that will be 8.75% for loan amounts up to Rs 30 lakh and 9.25% for amounts above that.

Axis Bank is organizing ‘Home for All’ expos in major cities. In these expos bank will give on-spot approval and wave loan processing fees for prospective buyers who will be applying for loan during the expos. The expo is the result of tremendous success achieved in a similar event organized last year. In the expos there will be a showcase of wide array of properties, across price points (Rs 5 lakh to Rs 5 crore) and category of properties (site, flats, houses and villas). The first expo will be start in Bengaluru from November 6, 2009.

Tuesday, November 3, 2009

Private Banks increasing business in gold loans

The gold prices are posting big rise thus several private financing companies in order to increase their lending to add up their profits, have started increasing their business in gold loans. Since some of the big banks’ have taken decision of cutting personal loans there has been boost in gold loans.

As per media reports, finance companies are seeing 80-100% growth in their gold loan business as more and more borrowers are looking at gold jewelry as a collateral for loans.

With commercial banks cutting back personal loans has helped NBFCs who are engaged in disbursement of gold loans. Several NBFCs have specialized in gold loans and have attained strength from hassle-free and speedy disbursement of loans. The gold price in bullish market provides comfort level to the lenders as they find it very convenient as collateral.

The Muthoot Group, which maintains to be the country’s largest lender against gold, have asserted that in the next 2 years the company will be increasing its gold loans portfolio to over Rs 4,000 crore.

Banks are putting foot forward very cautiously as they do not want to take any unwanted risks on defaulters. While some of the companies having specialization in this business are targeting only rural farmers and needy customers.

Manappuram Group sources informed in the last 3-4 months company have witnessed the maximum growth. At present its loan book looks healthy showing over Rs 2,000 crore whereas till September 30 it stood at Rs 1728 crore. If the company continues to make profit, the group will be able to achieve over 80-100 per cent growth in 2-3 years’ time.

Now the commercial banks are showing interest in the gold loan business.