Lacklustre demand for credit from industry cited as a reason

Public sector banks (PSBs) may want their retail customers to revel in the festive spirit a little longer.

These banks are likely to extend their retail loan promotion schemes beyond the festive season, up to March-end 2013.

Many of the banks rang in the festive season, which began in early September and runs up to December-end, by cutting lending rates on retail loans and waiving/reducing processing fees.

In the last two months, housing and auto loans have picked up substantially on the back of festive offers, say bankers.

PSBs are seen extending their ‘retail loan festival bonanza’ schemes up to the end of the fourth quarter to partly make up for the lacklustre demand for credit from industry.

There are 26 PSBs (majority owned by the Government) and they account for about 74 per cent of aggregate deposits and total advances of the banking industry.

“In the last three-four months, banks have announced promotional schemes to spur credit flow to the housing and auto (car) segments. These schemes are likely to be extended till March-end 2013. As a result, substantial increase in consumer loans is expected,” said the chief of a public sector bank.

The banker said that banks have indicated to the Finance Ministry about the likely extension of the festive season retail loan schemes.

What’s on offer?

For example, as part of its festival loan offer, which will be on up to December-end, State Bank of India is charging 10 per cent interest on home loans up to Rs 30 lakh and 10.15 per cent above Rs 30 lakh.

India’s largest bank is charging 10.50 per cent on car loans. It has also halved the processing fee on both the retail loans categories.

Union Bank of India, whose retail loan offerings could be considered more or less representative of other PSBs, is offering home loans up to Rs 75 lakh at 10.50 per cent and above Rs 75 lakh and up to Rs 5 crore at 10.75 per cent.

Union Bank, which is running an Independence Day to Republic Day retail loan promotional scheme, is offering car loans at 10.95 per cent. It has waived the processing fee on home and car loans.

The festive season retail loan schemes of PSBs such as Bank of Baroda and Corporation Bank ended on November 30 and it is widely expected that they will extend the same.

Consumer durables

As per Reserve Bank of India data, since the beginning of the current financial year and up to October 19, banks’ home loans have increased by Rs 25,800 crore and auto loans rose by Rs 9,100 crore.

Since the growth in loans for consumer durables has been low in the financial year so far, Finance Minister P. Chidambaram has asked PSBs to consider further steps to promote credit flow to this sector.

(This article was published on November 30, 2012)
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