Loan market: State Bank's gain is loss for others

At a time when the banking system is craving for loan demand, State Bank of India saw a whopping Rs 40,000 crore of fresh disbursement during the September–December quarter.

The surge in demand was evident in December and the trend has continued in January. As a result, till January, on a year-on-year basis, SBI has bettered the industry by clocking a little over 17 per cent growth, compared to 16 per cent loan growth of all banks.

About 25 per cent of this incremental growth is due to takeover of loans from other banks. “We have seen a surge in loan growth. About 30 per cent of this incremental growth is for working capital, while the rest is term loans. We are also getting other banks’ business, which has contributed about 25 per cent to the incremental loan growth,” Chairman Pratip Chaudhuri said during an interaction with the media while announcing the third quarter results.

SBI was able to get others’ businesses as it has the advantage of having the lowest benchmark loan pricing rate, which is the base rate. After the latest round of rate cuts by banks in early February, after the Reserve Bank of India lowered the cash reserve ratio and the repo rate by 25 bps each in the third quarter review of the monetary policy, SBI’s base rate, at 9.7 per cent, is lower by 50-55 basis points, compared with most other public sector banks. During the third quarter, the difference was 70-75 bps.

The base rate is what all loan rates are linked to. Banks are not allowed to offer an interest rate below the base rate, except for a few categories as specified by the banking regulator. According to Diwakar Gupta, managing director and chief financial officer, the loan shifting is more pronounced in the case of retail loans. Home loans, for example, are being sanctioned at Rs 150 crore a day and 25 per cent of the fresh disbursement is due to customers shifting their preference towards SBI. The bank charges 9.95 per cent for loans up to Rs 30 lakh, the lowest among banks.

Following abolition of prepayment penalty on home loans, mandated by RBI last year, customers have been increasingly shifting their home loans to banks offering a lower rate. SBI has been the biggest beneficiary, due to its aggressive pricing. This resulted in loan disbursement of Rs 40,000 crore in the December quarter, compared with Rs 15,000 crore in the previous quarter and Rs 24,000 crore in the first quarter. For financial year 2012-13, SBI expects 18 per cent growth in loans.

The bank has also seen a demand for loans from the infrastructure sector, like power, refinery and road projects.

Loan disbursement in the large corporate segment has shown an impressive growth of 25.78 per cent year-on-year till December, while retail advances have grown by 14 per cent. In retail, auto loans staged a growth of 31.25 per cent while home loans grew by 14.28 per cent.

The sector in which SBI is cautious is the mid-sized corporate segment, which is the biggest contributor to non-performing asset. Till December, loan disbursement in the mid-sized corporate segment have seen a growth of 6.95 per cent.