Lenders Pitch Freebies To Grab Festive Loan Demand

Banks are back with incentives to win over home loan borrowers as credit growth shows no signs of revival.

ICICI Bank Ltd. on Thursday said it will offer 1 percent cashback on every equated monthly instalment for loans with a tenure of 15 to 30 years. Borrowers can save 10 percent on the principal amount, said Anup Bagchi, executive director at India’s second largest bank by assets. Customers who borrow small-ticket loans for affordable housing are likely to go for such a product, he said.

Banks announce such schemes every year. This festival season, they are pushing even harder as mortgage portfolio grew at a slower pace after note ban as home sales fell. To add to it, overall credit is growth is at multi-decade lows with no revival in corporate borrowing. Home loans offer an opportunity to boost loan growth as they carry low risk with most customers being first-time buyers and property serving as collateral.

Bagchi said the scheme will help ICICI Bank grow its Rs 1 lakh crore home loan book. The housing portfolio contributed more than half of its Rs 2.47 lakh crore retail advances as on June 30.

The offer will be available on other mortgage products like loan against property, lease-rental discounting and top-ups on existing housing loans. Customers can club the scheme with some of its earlier incentives.

The only catch: they will have to stay on with the bank for the entire tenure to take full benefits, Bagchi said.

“Borrowers should ideally never prepay home loans. It is better to invest that money in other finance products and earn a better return,” Bagchi said. “Moreover, you get tax benefit on the interest paid.”

ICICI Bank’s offer comes more than a month after its private peer Axis Bank Ltd. decided to waive 12 EMIs for customers with good repayment record who have borrowed loans up to Rs 30 lakh for 20 years. This will help the lender expand its Rs 74,000 crore home loan book by at least Rs 4,000 crore in a year, said Rajiv Anand, executive director at the bank.

State Bank of India, tied up with Wadhwa Group to offer cheaper home loans to the real estate developer’s customers. The partnership would see SBI employees benefit from exclusive corporate deals, India’s largest lender said on Wednesday. It follows an August move to waive processing fees for home loan customers of other banks willing to switch to SBI.

The schemes underscore competition in the housing finance market with 100 banks and non-bank companies vying for customers. And another one joined the fray on Wednesday.

Billionaire Ajay Piramal-promoted Piramal Finance Ltd. launched a housing finance. The company will focus on eliminating hidden charges from home loan contracts to grow at a strong pace, he said.

Demonetisation Setback

The push for housing finance comes after rate of home loan growth petered off over the last few quarters. Through the last quarter of the year ended March, bank branches were busy with demonetisation work and couldn’t focus on acquiring customers.

The growth in the combined mortgages portfolio of banks and housing finance companies rose 16 percent year-on-year in 12 months to March, down from 19 percent in the year-ago period, according to a June report by rating agency ICRA Ltd.

By July-end, outstanding home loan portfolio of all scheduled commercial banks rose 10.5 percent year-on-year to Rs 8.64 lakh crore, according monthly data released by the Reserve Bank of India. A year ago, it grew at 17.2 percent.

Here’s an interview with Author and Mutual Fund Expert Amit Trivedi on how banks are able to afford these incentives on home loans and whether they will work.