PSU bank request relaxation in 75% risk weight on small home loans

The public sector banks are requesting the Reserve Bank of India (RBI) to either completely waive or substantially relax the 75 per cent risk weight that banks are required to attach to such home loans. Banks are following in line with Government’s diktat to extend home loans of up to Rs 20 lakh at concessional rates of interest thus they are ‘sacrificing their interests’ by offering home loans at subsidized interest rate of up to 9.25 per cent.

Dr K. Ramakrishnan, Chief Executive, Indian Banks’ Association pointed out, “Besides paring interest rates on home loans up to Rs 20 lakh, public sector banks have also brought down the loan-to-value ratio, and are providing borrowers free life insurance. Hence, banks have sought relaxation in risk weights on home loans to free up capital.”

At present the Government is not giving any subvention (financial support to make good the gap between market rate and the rate at which they expect these banks to lend) to public sector banks (PSBs) for offering home loans at subsidized interest rates. Banks argue that if the central bank gives relaxation on risk-weights, which will ease pressure on capital.

Banks want this relaxation in risk weights in their consultation with the RBI Deputy Governor, Dr Rakesh Mohan. On January 15 a meeting was organized, it was a part of the central bank’s exercise to consult stakeholders before the third quarterly review of monetary policy on January 27.

As per the housing loan scheme launched early last month by PSBs, interest rate on home loans of up to Rs 5 lakh of 20 years’ tenure would not exceed 8.5 per cent for the first five years, while the same for loans from Rs 5 lakh to Rs 20 lakh will not exceed 9.25 per cent.

As homes are reasonably priced in Tier-II cities and Tier-III towns, therefore PSBs are receiveing a good response to the concessional scheme for loans up to Rs 20 lakh. But this is not true in the case of the larger cities.

As per PSB official, as per the current deposit rates and statutory allocation towards SLR and CRR, most PSBs have to finance the interest rates they offer on home loans up to Rs 20 lakh.

Thus Bankers are of view that the RBI is more likely to reduce the risk weight to 50 per cent rather than waive the risk weight.

HDFC, BoR, Canara Bank announced cut in lending rates

Private sector lenders HDFC and Bank of Rajasthan following the RBI lines rolled down the lending rates giving relief for both existing and new borrowers while the state-owned Canara Bank has cut the rate for SME.

HDFC country's largest housing finance company has cut the lending rate by 50 basis points for loans of more than Rs 20 lakh for both existing and new customers and has also introduced a new slab for sub-Rs 20 lakh.

After this the loans of up to Rs 20 lakh will draw an interest rate of 10.25 per cent and the rates for loans above this level has been set at 11.25 per cent, down from 11.75 per cent. The new rates will come into effect from Monday.

According to a bank statement Bank of Rajasthan has reduced the rates on its home loans under 'Apna Ghar Scheme' by 1.50 per cent on maturity tenure of up to 10 years and one per cent for maturity tenure of over 10 years.

While the Bangalore-based Canara Bank reduced lending rates as much as 100 basis points for micro enterprises while for small and medium enterprises the reduction will be 50 basis points.

HDFC Ltd has also announced cut in deposit rates by 50 basis points across all maturities.

"The advantage of a cut in retail prime lending rates (RPLR) will accrue to all the existing floating rate customers over a period of next three months based on their respective reset dates," HDFC said in a statement.

Banks announcement of reducing rates has come within 24 hours of Home Minister P Chidambaram announcing in Parliament that the government will convince banks to reduce loans for existing home loan borrowers as well.

Public sector banks most preferred for auto loans

Public sector banks are moving on a fast track in the sanctioning of auto loans. Now more and more customers are knocking on their doors for auto loans rather than private banks because the public sector banks are sanctioning the loans at the same speed – two or three days and are also offering lower interest rates.

Earlier the private banks were leading the race. Now the private banks have become stringent in financing auto loans due to the global financial crisis. The public sector banks are making use of this opportunity.

For instance recently Mr Wilfred Minz, a supervisor at Life Insurance Corporation planned to get his Alto financed. Therefore he approached the State Bank of Patiala who offered him an interest rate of 12.25 per cent, while private banks rates start from 13 per cent and go as high as 18-19 per cent. The bank was fast in sanctioning the loan. Mr Minz recounts, “My experience has been that despite the extensive documentation they need (public sector banks), I did not have to run around and my loan got sanctioned in just two days,”

Alike, Mr Ramesh Khanna, a marketing manager, had got his Ford Ikon financed from the State Bank of India last month and was taken aback with the public sector bank’s promptness of service.

“It was hassle-free. I could not believe that a SBI official would come even at 9 p.m. to verify my documents,” he said.

A Maruti Suzuki dealer said, “Earlier public sector banks were taking a week or longer to grant auto loans and private banks were doing it in two-three days. Now it is the other way around. In the earlier days private sector banks were not so stringent in lending. Even without Form 16, if the customers had two years in a stable job, the loan got sanctioned. Public sector banks have more checks. Despite this, they are now at par, or even quicker in lending."

Even the carmakers are increasingly betting on public sector banks as private banks are cutting down on vehicle financing. Mr Mayank Pareek, Executive Officer Marketing and Sales, Maruti Suzuki India Ltd. pointed out, “Public sector banks are lending in such difficult times. Though this can help sustain business, for growth to happen there has to be more lending.”

As per bank sources, due to the slowdown, ICICI Bank’s share in financing Maruti cars has cut down to about 1,100 cars a month from the 11,000 cars which was used to be in its hey day. However SBI’s share has grown to 14,000 units a month from around 8,000. Hyundai even has State Bank of India as the second largest financier for its cars.

“The share of public sector banks in financing Hyundai cars has been growing despite their stringent lending norms, but there is scope for more aggression,” said Mr Arvind Saxena Senior Vice-President, Sales and Marketing, Hyundai India.

TimesofMoney & Barclays Bank to launch Barclays Online Money Transfer service

TimesofMoney a leading e-payments and remittance service provider, tied-up with global financial services major, Barclays, to launch Barclays Online Money Transfer, a remittance service, in the UK.

According to a press release issued by the bank after the launch of Barclays Online Money Transfer the bank's customers in the UK will be able to transfer money online directly to any Barclay’s account anywhere in India.

As per release in the near future the services will be extended to other countries as well.

TimesofMoney's President, Avijit Nanda, stated that "with Barclays Bank joining TimesofMoney as a banking partner, it will help us extend our offering to the customers enabling secure online payments."

He added, "With the extension of our white-labeled solutions, our partners can conduct their business with a higher level of security and greater convenience".

Barclays' Global Retail and Commercial Banking, Managing Director, India and Indian Ocean, Samir Bhatia, said that "having partnered with TimesofMoney, who possess strong technology and risk management capabilities in the domain; we are now ready to offer convenient and secure remittance service to our customers and establish our presence in the segment."

Corporation Bank reduces interest rate on home loans and vehicle loan rates

Corporation Bank has announced reduction on interest on home loans and other select schemes and will come into effect from November 17.

According to bank release floating rate on home loans up to Rs 30 lakh, interest rates has been brought down by 75 basis points and higher reduction has been brought about for loans above Rs 30 lakh.

Therefore floating interest rates on “Corp Home” loan up to Rs 30 lakh will be 9.75 per cent (10.50 per cent) and for loans of tenure up to five years, 10 per cent (10.75 per cent) for loans above five years and up to 15 years, and 10.50 per cent (11.25 per cent) for loans above 15 years.

The floating interest rates on Corp Home loan above Rs 30 lakh are: 10.50 per cent (12.25 per cent) for loans of tenure up to 5 years, 10.75 per cent (12.25 per cent) for loans above five years and up to 15 years, and 11 per cent (12.50 per cent) for loans above 15 years.

The interest rate for Corp Mobile (vehicle loan) scheme has been reduced to 12.50 per cent (13 per cent), whereas Corp Consumer (loans for consumer durables) scheme has been slashed down to 14.25 per cent (14.75 per cent) and Corp Vyapar (loan for traders) scheme is reduced to 14 per cent (14.25 per cent).

The release added that the revised interest rate will be applicable for all existing and fresh loans sanctioned. But for the existing fixed rate Corp Home loans, existing interest rate will continue till the new date.

SBI to expand branch network in UP

State Bank of India is considering of expanding its network in Uttar Pradesh.

The bank is thinking of opening up of 162 new branches in the state by March next year.

The new branches will be mainly opened in the rural and semi urban centers of the state.

At present bank is having a network of 1033 branches and with the opening of new branches the network will increase to 1195 in the circle.

According to the latest Reserve Bank of India data for June this year, the Bank has shown growth in market share in both deposits and advances.

As per the data, the market share in deposits for SBI Lucknow Circle has shown the growth in one quarter by 129 basic points. Likewise, in advances the market share has also grown by 64 basic points.

Auto financiers decision not affected by CRR cut, hike interest rates by 100bps

Few days back the Reserve Bank of India (RBI) on an adhoc basis reduced the cash reserve ratio (CRR) by 50 basis points, but this has not affected the decision of the leading auto finance banks, some of the banks have either hiked the interest rates by 100 bps or are planning to do it shortly. Since August this is the third hike and has resulted in a mounting increase of 250-300 bps in interest rates. This in turn has led to an increase of Rs 150 in the equated monthly installments (EMI) on a loan of Rs 3 lakh for a period of three years.

According to Sumit Bali, CEO, Kotak Mahindra Prime, “The recent reduction in CRR has only made more money available with the bank. As a result banks will become little more aggressive on the lending front. But the fact that the amount released is very low and there is no sign of easing of rates on other fronts, we have increased the auto interest rates by 100 bps”.

While N Ravnarain, auto finance head, ICICI Bank says, “Interest rates are the net impact of several factors like deposit base and operating costs and since the situation continues to be tough, the 100 bps hike was inevitable”. The new rate of interest would be the net rate to the customer and will come into effect from October 10, which would float between 15-15.5% as against the earlier rate of about 14-14.5%.

HDFC Bank, a leading car-financing bank in the country, is also thinking over a hike of 100 bps in auto loans from early next week. “At this juncture where banks are starved of cash, the interest rates could only be revised upward despite the recent cut in CRR,” says Rajan Pental, auto finance head, HDFC Bank. “Though there has been no decision, we might go for a 100 bps hike next week,” he adds.

In view of increase in auto loans by 250-300 bps since the beginning of this fiscal, The EMIs on a loan of Rs 3 lakh have also shown a jump of Rs 450-Rs 500.

While a Mumbai-based analyst says, “At a time when the passenger car industry is struggling to pick up speed, the increase in interest rates would dampen the overall sentiments of the buyers during the festive time”.