Private banks hot on retail core funding

New generation private sector banks led by ICICI Bank and UTI Bank and mortgage major Housing Development Finance Corporation and country's largest commercial bank State Bank of India (SBI) are making forays into organised retail financing in a big way.

Lending to thr sector is done either through term loans for construction or discounting lease rentals.

Most financial institutions operating in this space offer construction loans at around 7 per cent to 13 per cent, said a senior banker. Loans are granted taking into account the relationship with the builder, tenure of the loan and anchor tenants, he added.

ICICI Bank and SBI recently signed an memorandum of understanding with Deepak Fertiliser and Petrochemicals Corporation-promoted speciality mall Ishanya in Pune to offer package funding schemes for tenants and end customers.

In accordance with the pact, the banks will offer term loan to set up or renovate showrooms and shops and working capital loans. Besides, they will do credit card sales discounting for retailers and project funding for builders and developers.

The two banks will also offer home improvement loans for end customers, said the bank officials.

"Financing of such organised retail outlets gives us access to huge retail customer base at lower costs as well as an opportunity to cross sell products," said a senior banker.

From just three malls in 2000, India will have over 220 malls by 2005, he added. They are all in different stages of planning, design and construction hence. This offers a huge business opportunity tor banks.

Asok Kumar, president credit, UTI Bank, said that the bank has been active in this space for the last two years. The bank has financed 6 to 7 malls and multiplexes with disbursements of around Rs 500 crore.

A senior Punjab National Bank executive said a large part of the credit offtake is on account of banking industry's exposure to the retail infrastructure segment. Organised retailing is soon catching up, said the credit head of a leading private sector bank.