Wednesday, January 9, 2013

Home-loan battle: David co-operative bank takes on Goliath SBI

Saraswat Co-operative Bank has pitched its rate of interest and equated monthly instalment on home loans a shade lower than State Bank of India’s in what could be seen as a David vs Goliath challenge..
Saraswat Bank had a business size (deposit plus advances) of about Rs 33,000 crore against State Bank of India’s Rs 20,89,644 crore as at September-end.
The country’s largest multi-state urban co-operative bank is charging home-loan borrowers 9.9 per cent on loans up to Rs 25 lakh and 10.1 per cent on loans above Rs 25 lakh.
India’s largest bank, SBI, is charging home loan borrowers 10 per cent on loans up to Rs 30 lakh and 10.15 per cent on loans above Rs 30 lakh.
On a 20-year home loan of up to Rs 25 lakh and above Rs 25 lakh, a Saraswat Bank customer has to pay a monthly instalment of Rs 958 a lakh and Rs 972 a lakh, respectively. On a 20-year home loan of up to Rs 30 lakh and above Rs 30 lakh, an SBI customer has to pay a monthly instalment of Rs 966 a lakh and Rs 975 a lakh, respectively.
A senior Saraswat Bank official said his bank had priced home loans lower to attract more customers. Moreover, corporate loan growth has been tepid due to economic slowdown. Hence, the thrust is on growing the home-loan book.

Though Saraswat Bank’s pricing is more attractive compared with SBI, the customers of the former will have to contend with processing fee and the requirement to invest in the bank’s shares.

The co-operative bank is charging a processing fee of Rs 5,000 for home loan up to Rs 25 lakh; Rs 15,000 for above Rs 25 lakh and up to Rs 50 lakh; and Rs 25,000 for above Rs 50 lakh.
SBI charges a processing fee of 0.125 per cent for home loans up to Rs 25 lakh; Rs 3,250 for loans between Rs 25 lakh and Rs 75 lakh; and Rs 5,000 for loans above Rs 75 lakh.
Borrowers have to invest 2.5 per cent of the loan amount (subject to a maximum of Rs 25,000) in the shares of Saraswat Bank. This is the case with all urban co-operative banks.
However, investment in the bank’s shares fetches borrowers a dividend. On average, Saraswat Bank has paid 20 per cent dividend in each of the last five financial years.
In the financial year ended March 31, 2012, the co-operative bank’s average cost of deposits was 7.2 per cent. Even if one assumes that this financial parameter remains unchanged, the bank is still earning a spread of 2.7-2.9 percentage points on home loans.

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