HSBC rolls out loans for low-salaried class

HSBC, a leading global banking and financial services organisation, today entered the business of small personal loans in India, charging interest rates of 32-48 per cent per annum.

The new loan product, HSBC Pragati Finance, is aimed at people who earn up to Rs 4,000-Rs 8,000 a month. The bank officials said the interest rate range may sound very high, but it is in line with competing products.

Citigroup's Citifinancial and GE Money are among the large players which have loan products that cater to this segment.

"The interest rates are as they exist now. The rates are certainly lower than what money lenders charge," said Naina Lal Kidwai, group general manager and country head, HSBC India.

HSBC's immediate target is to reach the product to 10 million households in 25 cities that they operate through 46 branches.

The product offering comprises personal loans ranging from Rs 10,000 to Rs 50,000 with no collateral or guarantee and the promise of processing a loan application within three days.

The interest rate on small loans are meant to take care of the risk of defaults and cost of delivery and collection on a portfolio basis, said Nicholas Winsor, head-personal financial services, HSBC India.

"The risk is of the unknown (customer who has had so far limited access to organised lending)," Winsor said, saying the interest rates on micro-finance are lower because the risk in micro lending is to a group of borrowers against dispersed individuals in personal loans.

Kidwai said, "It was a very important market segment which we have traditionally not been in. India has a very low loan to GDP ratio of 3-4 per cent. There is huge opportunity for banks." The loan to GDP ratio is 30 per cent on an average in other Asian countries.

HSBC quoting a Goldman Sachs report said India has a working population of 678 million, which will increase to 735 million in 2010.

Ravi Subramaniam, head of HSBC Pragati Finance, said the idea is to build a credit imprint of those who do not still have access to organised sources for loans.

"A good experience with a customer will result in lower a interest rate when the customer again approaches us for a loan," he said.