Banks Pull Out All Stops To Lure Home, Auto Buyers During The Festive Season

The festive season will not be the same this year. Covid-19 infections are still high. Mobility is restricted. Many consumers are grappling with the loss of jobs and income.

Against this backdrop, lenders are going the extra mile to make home and auto loans seem attractive. The recent regulatory easing by the central bank, aimed at boosting consumer demand during the festive season, has also helped.

On Wednesday, State Bank of India announced that its home loan customers will get an interest rate concession of up to 20 basis points based on their credit score for properties costing Rs 75 lakh and above. Those applying via the bank’s digital banking application and women borrowers will be eligible for a further concession of 5 basis points each.

That brings SBI home loan rates to the lowest they have been in years, with a subset of borrowers being able to take funds at less than 7%. Bank of Baroda, too, is offering 7% as its lowest rate with a concession for balance transfers, while peer Punjab National Bank is offering a rate marginally higher than that.

Private banks are matching some of these offers, going by listings on Paisabazaar.com. HDFC Ltd. is offering festive season rates starting from 6.9%, shows the aggregator’s website.

“We foresee this festive season to be a very crucial period for the demand of home loans to improve, with consumers buying new homes and increase in homebuilding activity across the country," said HT Solanki, head of mortgage and other retail assets at Bank of Baroda. Solanki expects prospective customers to get an incentive to shift existing home loans to the bank because of competitive pricing and waiver of processing fees.

CS Setty, managing director at SBI, is also hopeful that home loan offtake will improve. “As people are spending more time indoors, they prefer to own a home and a larger one at that,” he said. Setty’s optimism rests on a combination of factors, ranging from improved affordability of homes in some markets, special offers by builders, concessions from state governments and, critically, a push by lenders.

Some of the offers on home loans are timed well but would have happened anyway after the central bank’s announcements early this month, said Ratan Chaudhary, head of home loans at Paisabazaar. On Oct. 9, Governor Shaktikanta Das announced that the RBI had rationalised risk weights by linking them only with loan-to-value ratios for new home loans sanctioned up to March 31, 2022.

Home loan enquiries at Paisabazaar are already higher by about 10-12% for affordable housing below Rs 30 lakh. In the pricier segments, enquiries are at about 95% of the pre-pandemic levels.

“With home loans at the cheapest that they have been in over a decade, existing customers will also switch to cheaper home loan rates. In fact, most banks are focusing on home loan takeovers now,” Chaudhary said.

While other banks are expected to follow SBI’s announcements to discount interest rates depending on loan value, some such as HDFC Bank Ltd. and ICICI Bank Ltd. are also offering a concession of about 0.5% for projects by top-graded real estate developers. Even other smaller non-banks, while unable to compete on interest rates, are waiving off processing charges and extending other benefits, Chaudhary said.

In some cases, developers are tying up with lenders and offering sops from their end. For instance, Tata Housing has announced a scheme which enables customers to pay 3.99% flat interest rate for a period of one year, with the rest being borne by the company. Customers are looking at benefits which reduce their down payment and are also scouting for festive offers with big discounts, Sanjay Dutt, managing director and chief executive officer of Tata Realty & Infrastructure Ltd., was quoted as saying in a statement on the scheme.

Are Banks Equally Aggressive On Auto Loans?

A similar story is unfolding for auto loans, too.

State Bank of India and Bank of Baroda are both offering a festive season concession of up to 25 basis points on auto loans as well. A press statement by Axis Bank Ltd. claims 100% on-road funding for auto loans. Federal Bank is offering to finance 95% of loans for cars of Hyundai Motor India Pvt. Ltd. and Maruti Suzuki India Ltd.

Dealers, however, report conflicting trends. Banks, which earlier financed 80-85% of the on-road pricing of the vehicle, are now financing only 65%-70%, BloombergQuint reported last month.

Many lenders announced concessions on car loan interest rates during the festive season to garner a bigger share of the market, said Chaudhary. Processing fees have also been waived as often happens during these months.

Setty said that customers, still wary of the pandemic, now prefer their own cars. Demand is picking up and it is unlikely to be transitory. The pickup seen in July and August was likely because of pent-up demand, he said. Sales in September and October continue to indicate an improvement, he added.

Vyomesh Kapasi, managing director at Kotak Mahindra Prime Ltd., agreed. In the new normal, the purpose of buying a car to ensure the safety of one’s family is also turning out to be very important, Kapasi said. As such, auto loans are seeing a strong bounce back.

The optimism is yet to reflect in data.

Bank credit grew by 6.02% in August 2020, the lowest since August 2016. Housing loans grew by 11.1% in the same month, compared to 16.6% last year. But, auto loans grew by 8.4% compared to 3.7% in the same period last year.

Will lenders’ efforts help push up credit growth? “Absolutely!” said Setty. “We are already seeing greater traction across sectors and a general improvement in offtake,” he said.

Pent-up demand from the lockdowns along with offers announced can push up sales to pre-covid levels, said Mayank Kachhwaha, co-founder and COO at IndiaLends. While housing loan enquiries continue to inch closer to pre-covid levels, inquiries for other personal loans are still at about 60-65%, said Kachhwaha. These are likely to take longer to pick-up, he said.