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SBI battles HDFC for retail loan share

Country's largest bank offers lower rates but delivery challenges remain

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On Tuesday last week, (SBI) reduced its (BR) by 25 basis points (bps) to 9.75 per cent, becoming the lender with the lowest BR among large banks. The next day, it gained another distinction: It dethroned in market capitalisation.

HDFC regained its position as the most valued bank on the next trading day but was again overtaken by SBI the following day, to remain on top since then.

It might not be a mere coincidence that the see-saw battle between the two banking behemoths in the stock markets was also reflected in their respective plans to get a sizeable share of the market.

SBI  10.50% Up to Rs 30 lakh 10.0%
Rs 30 lakh to 
Rs 75 lakh 
Above Rs 75 lakh 10.15%
HDFC Bank 11.5% to
HDFC NA Up to Rs 30 lakh 10.5%
Rs 30 lakh to 
Rs 75 lakh 
Above Rs 75 lakh  11.0%

The SBI management has realised that its main competitor in the home loan market is Housing Development Finance Corporation. For automobile loans, it is HDFC Bank. As on June-end, SBI controlled 25.5 per cent of the home loan market. In auto loans, its market share was 19.25 per cent.

SBI first reduced its spread (the margin above the BR) on home and car loans in early August, following the Reserve Bank of India’s decision to reduce the requirement for banks. The decision released Rs 10,000 crore for SBI.

Following the reduction on spreads on home loans, the effective interest rate for new customers came down by 50-85 bps, depending on the loan amount. For automobile loans, the effective interest rate was brought down by 50 bps.

And, following the cash reserve ratio (CRR) cut of 25 bps by RBI, which released Rs 2,500 crore for the bank, SBI decided to reduce the BR by 25 bps to 9.75 per cent, a move which will further bring down the interest rate, by a similar magnitude. Due to both the moves, SBI’s automobile loan rate is at least 100 bps lesser than HDFC Bank’s. In home loans, SBI customers will enjoy a 50-85 bps lower rate than counterparts in HDFC.

The retail thrust of SBI comes on the back of sluggish credit demand from the corporate sector. The bank expects retail credit, likely to grow 25 per cent this financial year, to partly offset the slack demand.

People connected with banking, however, say while the lower interest rate gives SBI an edge, delivery of loans remains a challenge. Also, SBI might not enjoy its ‘best price’ proposition for long, as HDFC Bank has already hinted it would be cutting its own BR.

Housing finance companies would also cut rates once the cut reduces the overall cost of funds. This could happen in a month.

Historically, private sector entities are known to process loans faster. “The valuation of property and legal checks are done internally by the private players but still outsourced by SBI,” said an SBI official.

In addition, banks in India face another hurdle when it comes to funding of inter-city housing loans. “If a person is based in Mumbai, for example, and wants to buy a property in another city, he has to approach a bank’s branch based in the city where the property is located. However, housing finance companies have the flexibility to fund any property from any other city,” said an official of a housing finance company.

Private entities also gain due to numerous tie-ups with builders and automobile outlets. They also offer commissions to individual agents who sell the product, apart from the builder/agency — a practice SBI is yet to formalise.

“We are also having tie-ups with builders and car dealers. We may not sanction a loan within 48 hours but we definitely do in four days,” Pratip Chaudhuri, chairman of SBI, told Business Standard.

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