State Bank of India, the country's largest lender, has decided to extend the special offer for auto and home loans till September.
Under the scheme, which was earlier valid till the end of April, the bank had frozen the interest rate on new home loans at 8 per cent during the first year, while the cost of auto loans was fixed at 10 per cent during the first year. Subsequently, the interest rate was to be revised to the prevailing rate.
Extending the scheme by five months, the bank also said Monday that top-up loans for home loan customers that are disbursed up to September 2009, would cost 8 per cent in the first year.
SBI reiterated that the special rates were aimed at stimulating demand. When it had first announced the special rate schemes, its rivals -- including HDFC, the largest mortgage player -- had termed the move as a teaser offer and had said that it would only result in borrowers shifting their accounts.
Subsequently, HDFC executives said that the move has not resulted in too many customers shifting to SBI to avail of the special offer. But the housing finance company responded by reducing its prime lending rate to enable its existing borrowers to avail of the lower interest rate regime.
While SBI has lowered its benchmark prime lending rate by 150 basis points since November, it has not participated in the latest round of rate cuts by public sector banks. Instead, it has come up with special loan schemes aimed at housing, auto and small and medium enterprises.
When contacted, Nanda Kumaran, SBI's chief general manager for retail banking said the bank has sanctioned loans worth Rs 2,500 crore (Rs 25 billion) to over 20,000 customers under the special home loan scheme which was announced in February 2009.
Similarly, in case of the special auto loan scheme, he said the response was good. Most auto loans disbursed through the scheme have been availed of by individuals purchasing entry-level models from Maruti, Hyundai and Tata Motors. These loans do not include the bookings for Nano, which opened last week.
"We have received a good response to the schemes and the extension by five months is expected to help boost the demand in the economy," Nanda Kumaran added.
Executives at private sector banks said that SBI was among the most aggressive players in the car finance business at present and was among the highest loan disbursing lenders along with HDFC Bank. Many of the bigger players, such as ICICI Bank, Citi and Standard Chartered, have reduced the scale of operations in the auto loan market due to rising delinquency levels.
An SBI executive said that the country's largest bank had managed to increase the outstanding retail credit portfolio to above Rs 1,00,000 crore (Rs 1,000 billion) at the end of March 2009, partly aided by the special offers and aggressive pricing of retail loans. It is targeting a 30 per cent growth in its retail portfolio during the current financial year.
As of December 2008, SBI's auto loans portfolio was estimated at Rs 8,970 crore (Rs 89.70 billion), 32.14 per cent higher than the Rs 6,788 crore (Rs 67.88 billion) it had disbursed till December 2007. Similarly, during the period, its home loan portfolio grew 21.56 per cent to Rs 52,062 crore (Rs 520.62 billion), while the residual retail loan book was estimated to have increased by 30.82 per cent to Rs 37,077 crore (Rs 370.77 billion).
