Private lenders such as ICICI Bank and HDFC Bank, which spearheaded the retail loan revolution and introduced the EMI (equated monthly instalment) culture in the country in early 2000, had the first mover’s advantage through the last decade, with retail advances accounting for the majority of their loan books. But, things have started changing, with PSBs such as State Bank of India and Bank of Baroda focusing on the retail segment in the last few years. Apart from streamlining loan processing, most PSBs charge lower, which seems to be a game changer.
According to the Nielsen survey, one in four customers prefers not to get a home loan or a car loan from his/her primary bank because of the lengthy processes, high interest and processing rates. Though the shift is seen for customers of both private banks and PSBs, this is more so for customers of private lenders. Of the 25 per cent consumers shifting banks, 71 per cent move to PSBs, while only 26 per cent shift to private banks (three per cent didn’t specify their preferences).
Factors influencing the shift include interest, the loan amount sanctioned and the tenure of the loan.
“We can say a good population of consumers will be shifting from the private sector to public sector banks,” said Subhash Chandra, executive director of Nielsen India and the author of the report.
He added the rate of interest and offers and promotions were the key factors for consumers, in terms of a decision on loans. “A consumer will sacrifice on the quality of service when it comes to taking a loan, but ensure the interest rates are more competitive, something PSBs have managed in the past with offers and schemes.”
The dynamics in the loan market are contrary to those in the deposit segment, where private banks have managed to gain market share from their public sector counterparts in current account and savings account deposits, or low-cost deposits. Chandra says, “While opening an account, you take a look at the proximity of the bank branch, the ATM (automated teller machine) network, quality of service, etc, unlike a loan, for which the rate of interest is the deciding factor.”
Monish Shah, senior director, Deloitte India, agrees. “Traditionally, India has been a price-sensitive market and when it comes to loans, this is the deciding factor, unlike an account-related service, for which quality of service has a premium. This is the reason why the shift in the loan segment is more skewed towards PSBs than private ones.”
Arun Kaul, chairman and managing director, UCO Bank, said, “PSBs have improved their offerings on the product, pricing and services fronts and expanded; now, these are in line with market offerings. As a result, it is possible they managed to gain market share from private banks.”
The survey shows while researching loan products, 75 per cent of consumers approach three different banks/non-banking financial companies. And, three out of 10 consumers avail of loans earlier than planned, owing to promotional offerings.
TIMES THEY ARE A CHANGIN’
* Earlier, private lenders had retail advances accounting for the majority of their loan books
* Of late, PSBs are also focusing on the retail loan segment
* Apart from streamlining loan processing, most PSBs charge lower interest
* Factors influencing the shift include loan amount sanctioned and the tenure of the loan
* One in every four customers doesn’t take a loan from his/her primary bank due to lengthy processes involved