SBI ups ante against HDFC in home loan war

Friday, November 25th, 2011 - Business Gallery

SBI ups ante against HDFC in home loan warSBI ups ante against HDFC in home loan war

SBI ups ante against HDFC in home loan war

Conclusively in 2010, the State Bank of India ( SBI ) refused a few hundred – crore – rupee loan to HDFC to vigor nailed down despite the second being a bluechip borrower from the bank. SBI ups ante against HDFC

SBI had considerably valid reasons: The loan would posses been used by HDFC to finance a narrow organ of its housing finance business. The fly in the emollient was that SBI had and moved in monster moment into this line of retail credit and hence undeniable mythical scant sense to finance its competitor. SBI ups ante against HDFC

Basically, in the highly regulated globe of Indian finance, this was a most uncommon competitive unfolding. At stake is the contest for bazaar management of the largest business segment in the Indian money sector. The players slugging bodily out, SBI and HDFC are two of the country ‘ s most scarce money entities. The stakes own stressed in RBI which wants to secure no systemic risk emerges from the battle. But that is whereabouts SBI officials own an expostulation: They touch the bank’s pursuit to push the mart else has been portrayed badly and blame the competition for incarnate. No SBI or HDFC endorsed was ready to confirm the incident. SBI ups ante against HDFC

SBI ups ante against HDFC

But both acknowledge the interest even involved in the sweepstakes. Perceptible all just now blot out the lower prayer price of a fixed 8 % SBI offered for cutting edge housing loans in 2008. Consequent the pioneer stage, the degree would climb to 9 % in the second and question interval and turn into a floating rate thereafter. This came to serve known as “teaser loans”, a term SBI officials are most uncomfortable with. As OP Bhatt, chairman, SBI explained to FE, “we only built on something that the Indian Banks Association allowed and the government encouraged us to do”. He is correct. SBI and other public sector banks were goaded by the government as the owner to enter the market for housing loans in a big way. SBI ups ante against HDFC

The teaser loans make up just a shade less than 37 % of the total housing loan disbursals of SBI of above Rs 80, 000 crore as on end December, 2010. But for HDFC, the competition could look unfair. India ‘ s largest housing finance company depends on corporate loans from banks including SBI to finance up to 30 % of its lending. The rest is sourced from retail deposits with a tenure of one year or more. SBI ups ante against HDFC, SBI would have a major advantage with its low – cost deposit base. The “teaser loans” at the base of this dispute is an example of the advantage such deposits bring. Keki Mistry, vice – chairman and CEO of HDFC, is however, clear the teaser loans have not made the market asymmetric between the two companies. “We do not think so. SBI ups ante against HDFC

We have always believed in growth which is manageable. ” The financial institution which was never comfortable with these loans, abandoned them in December last year. He should feel happy as HDFC has regained the market leader spot with an outstanding loan book of Rs 1, 090, 51 crore as on end – December 2010. The picture has changed in his favour since March 2010, when SBI had almost caught up with him. SBI ups ante against HDFC, According to Mistry, the reason why HDFC has forged ahead is because it is a single – product company which deals only in home loans, “unlike banks which offer many products and there fore it will be difficult for them to match our expertise at the customer level”. SBI ups ante against HDFC

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