Public sector banks woo customers with 'balance transfer' on home loans
08 June 2009
Public sector banks have started aggressively wooing home loan customers away from private sector banks and HFCs with 'balance transfer' facilities to encourage them to make the switch. However, in the process they are not letting their guard down even as they seek to build their retail loan book. Caution in respect of the quality of assets remains the key concern even as the banks go all out to attract potential switch prospects.
What public sector banks have going for them is the interest rate differential on the home loans they offer and that of private sector banks and housing finance companies. When this is large enough, the customer has a good incentive for making a switch. For example on a Rs30-lakh home loan with a 20 year tenure, public sector banks currently charge a floating interest rate of about 9.25 per cent, while select private sector banks / HFCs are quoting between 9.75 and 10.50 per cent.
According to a senior public sector bank official, customers would do well to first do a cost-benefit analysis before opting for a transfer of their outstanding home loans from one bank to another. The reduced EMI instalments should far outweigh the processing fee charged by the new bank and the penalty charges that the closing of the loan account with the old bank would attract.
According to another senior official of a different public sector bank, customers opt for balance transfer due to the extremely competitive rates vis-à-vis rates charged by private banks. However the transfer process is preceded by a due diligence exercise on the customer.
The State Bank of India, the country's largest bank, has reportedly received a huge number of applications for takeover of home loans, ever since the launch of its special home loan scheme offering loans at 8 per cent. According to an official the response has been very positive and offers the bank a way to enhance its position in the home loans market.
Andhra Bank too has taken over home loans from private sector banks and is known to be aggressively pushing to up its retail loan share. However, according to a senior bank official it is not that the bank takes any customer who wishes to switch over, rather there is a rigorous process that is followed which includes checking the title deeds and carrying out all due diligence. The customer stands to benefit as the bank charges a lower rate of interest than its competitors in the private sector.
However, not all public sector banks encourage takeover of loans as there is much uncertainty and risk involved. For instance, if the interest rates were to fall again, the customer shifting out cannot be ruled out. Several public sector banks therefore remain wary of loan acquisitions and agree to in on a selective basis.
