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Competitive pressure in mortgages to ease up as SBI withdraws teaser loans. SBI
proposes ceasing its teaser loans for housing and cars from May 2011. The decision is
likely driven by a push back from the regulator, who is not in favor of teaser loans. SBI
will still remain the most competitive on home loan rates, though the difference
between SBI’s product and others is likely to reduce, dousing some of the heat in
competitive interest rates.
SBI will discontinue teaser loans
SBI proposes to discontinuing its highly successfully teaser (dual–rate) home loan product from
May 2011, likely on the back of the regulator’s disapproval. As highlighted in Exhibit 1, the bank
has reported strong growth in home loan portfolio on the back of this product-—over the past
two years, SBI has built up a teaser loan book of Rs370 bn.
As per recent RBI regulations, SBI will need to maintain a provision of 2% on teaser loans. The
company has made provisions of 0.4% (as in case of other assets) and will need to make provision
of additional 1.6% i.e. about Rs5.9 bn.
SBI to increase focus on margins
On Tuesday, SBI raised its base rate by 25 bps to 8.5%. In his first media appearance on
Wednesday, the new SBI chairman announced the bank’s decision to discontinue teaser loans. The
chairman has indicated that the bank will not compete on interest rates in the home loan market.
We believe that the new management is inclined to focus on margins (and profitability) over
market position, which will augur well for SBI and the system as well.
Competitive intensity to moderate
SBI will now offer home loans at base rate + 1-1.25% i.e. in the range of 9.5-9.75% for loans
upto Rs7.5 mn as against previous offer of 8.75 (fixed for one year) This clearly improves the
competitiveness of HDFC and other players in the housing finance sector, most of whom offer
new home loans at close to 10%. However, most players charge a prepayment penalty of about
2% (for repayments of over 25% of opening loan balance at the beginning of the year). SBI will,
however, not charge any prepayment penalty.
Exhibit 2 highlighted the rate of interest charged by various players – HDFC and ICICI Bank offer
home loans at about 10%; the gap between the home loan rate offered by HDFC and SBI will
now decline considerably. LICHF is now the only large player that offers a dual rate product (loans
fixed for 5 years at 10.15%) and will also likely need to migrate to a floating product.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Banks/Financial Institutions
India
Competitive pressure in mortgages to ease up as SBI withdraws teaser loans. SBI
proposes ceasing its teaser loans for housing and cars from May 2011. The decision is
likely driven by a push back from the regulator, who is not in favor of teaser loans. SBI
will still remain the most competitive on home loan rates, though the difference
between SBI’s product and others is likely to reduce, dousing some of the heat in
competitive interest rates.
SBI will discontinue teaser loans
SBI proposes to discontinuing its highly successfully teaser (dual–rate) home loan product from
May 2011, likely on the back of the regulator’s disapproval. As highlighted in Exhibit 1, the bank
has reported strong growth in home loan portfolio on the back of this product-—over the past
two years, SBI has built up a teaser loan book of Rs370 bn.
As per recent RBI regulations, SBI will need to maintain a provision of 2% on teaser loans. The
company has made provisions of 0.4% (as in case of other assets) and will need to make provision
of additional 1.6% i.e. about Rs5.9 bn.
SBI to increase focus on margins
On Tuesday, SBI raised its base rate by 25 bps to 8.5%. In his first media appearance on
Wednesday, the new SBI chairman announced the bank’s decision to discontinue teaser loans. The
chairman has indicated that the bank will not compete on interest rates in the home loan market.
We believe that the new management is inclined to focus on margins (and profitability) over
market position, which will augur well for SBI and the system as well.
Competitive intensity to moderate
SBI will now offer home loans at base rate + 1-1.25% i.e. in the range of 9.5-9.75% for loans
upto Rs7.5 mn as against previous offer of 8.75 (fixed for one year) This clearly improves the
competitiveness of HDFC and other players in the housing finance sector, most of whom offer
new home loans at close to 10%. However, most players charge a prepayment penalty of about
2% (for repayments of over 25% of opening loan balance at the beginning of the year). SBI will,
however, not charge any prepayment penalty.
Exhibit 2 highlighted the rate of interest charged by various players – HDFC and ICICI Bank offer
home loans at about 10%; the gap between the home loan rate offered by HDFC and SBI will
now decline considerably. LICHF is now the only large player that offers a dual rate product (loans
fixed for 5 years at 10.15%) and will also likely need to migrate to a floating product.
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