HSBC targets small loans

Loans up to Rs 50,000 to attract 35-50 per cent interest

HSBC India, which opened a branch in Nagpur recently, is set to give local money lenders a tough competition. The bank has drawn up plans to capture the retail finance business by offering small loans up to Rs 50,000 and charge interests in the range of 35 to 50 per cent.

The bank will target those people who do not have access to the organised banking and they often turn to the money lenders for their credit needs.

HSBC plans to float a non-banking finance company (NBFC) in the form of a wholly-owned subsidiary through which the loans would be routed.

The bank had applied for registration with the Reserve Bank of India (RBI) during the third quarter of the previous year and hopes to get an approval within a few months.

The bank describes it as an effort to provide easy credit and a means to offer access to the banking system for the masses. These will be small loans but also a test of creditworthiness for clients. Once credit records are established it would be easier for such people to access loans from the regular banking system, says an HSBC official.

"A number of applications including ours is pending with the RBI. However, the central bank has recently come up with new guidelines on NBFCs. With the new guidelines in place we hope that the approvals would also be given soon," said HSBC's head of personal financial services, Nicholas Winsor.

Apart from high net worth individuals and corporate clients, HSBC finds small ticket loans as a prospective area of business and loans through the NBFC can be the best mode to tap this segment, Winsor told newsmen.

Though the maximum limit of loans has been pegged at Rs 50,000 the average size would be kept at around Rs 20,000 to Rs 25,000. Repayment would be expected in 3 to 4 years.

Winsor justified the high rates of interest on the grounds that loans would also be extended to people don't have anything to prove their creditworthiness. The bank would be taking a big risk in this effort and the interest rates are to cover the exposure.

Once the first loan is cleared, the bank would try and see that these clients get the next loan at a lower rate of around 16 per cent, he said. Winsor said that the bank had also tied up with a few non-government organizations for promoting micro-finance. HSBC has associated itself with projects like schools and a women's bank, he said.

It is also planning to open branches in cities like Raipur as well as Jodhpur and Patna.

13th branch opened in Maharashtra

HSBC aims to cater to the upper middle and middle income groups through the Nagpur branch, which is the bank's thirteenth unit in Maharashtra. The branch was jointly inaugurated by HSBC's Head of Personal Financial Services, Nicholas Winsor and the city's Municipal Commissioner Lokesh Chandra.

This full service branch, located at Shriram Shyam Tower, Sadar, provides a wide range of personal and commercial banking services as well as financial planning products through wealth management services.

It also has a 24-hour ATM facility. Commenting on business prospects in Nagpur, Winsor said that the city had developed a lot since 1990s when he first visited the place as a tourist.

Mushrooming of software parks as well as the proposed cargo hub is expected to bring in substantial investment here. This will increase the spending propensity of the people and lead to wealth generation, which is a good sign for any banking company.