The Hindu Business Line : Retail finance moving to Tier II cities

A major factor forcing many public sector banks to reposition themselves in the retail-loans market, by enhancing focus in the Tier-II cities, is that most of them have lost considerable market share in the metros to their private sector and foreign counterparts.

Mumbai , Feb 16

RUTHLESS competition in the business of retail-finance in metro cities has brought into sharp focus the untapped potential in the emerging markets of the so-called Tier-II cities across the country.

Industry analysts broadly define metro cities as being the Tier-I category cities, state capitals and bustling towns as Tier-II and other semi-urban and rural centres as Tier-III areas.

After saturating the urban markets with housing and auto loans, a number of leading banks and financial institutions are now targeting these smaller cities and satellite towns, to aggressively push their retail loans.

A major factor influencing this shift in geographical focus is the ongoing `rate wars' among banks and financial institutions which has pushed many of these players to lend below their cost of funds.

In fact, analysts contend that the next retail boom is waiting to happen in these smaller towns and cities, as the urban markets may now be saturated.

ICICI Home Finance, one of the leading players in the housing finance business today, is looking at expanding its presence in Tier-II cities, according to Mr Rajeev Sabarwal, Chief Operating Officer, ICICI Home Finance.

"We have been present in these cities over the last one and a half years. The market has been growing in these areas. We are looking to expand into the locations, where we are not there at present, and are even looking at getting into the Tier-III cities," he said.

One top official with a leading public sector bank said, "The Tier-II cities and satellite towns etc, offer great potential for the retail loan market as lot of these areas are still largely untapped. In fact, a lot of auto and two wheeler companies are looking at this market segment with a new interest".

Another advantage in moving to Tier-II cities for business is that customers still have limited options and are not as aware as the customers in the big cities, according to bankers.

"Since there are few players in these areas, customers here don't drive a hard bargain in order to force us to knock down the interest rates," said an official with a public sector bank.

Meanwhile, new-generation private sector banks are also waking up to the potential this market has to offer, and attempting to snatch a piece of the pie through their agents.

On the other hand, public sector banks, which already have extensive branch-networks in semi-urban and rural areas are hoping to leverage their reach to boost profitability in the retail business.