Comments
By cutting the benchmark lending rate and lowering the equated monthly instalments, State Bank of India has tried to commoditise the home loan and car loan market, said a top official.
By lowering the EMI burden, price (of the house property or car) will now be the sole determinant in taking a decision on acquiring an asset, said Pratip Chaudhuri, Chairman, SBI.
SBI cut its base rate (the benchmark lending rate below which it cannot lend) to 9.75 per cent from 10 per cent on September 18.
This reduction in base rate came after the Reserve Bank of India cut the amount of cash that banks need to park with it (cash reserve ratio) to 4.50 per cent from 4.75 per cent on September 17.
He said the strategy (behind the base rate cut) is to position the bank in a competitive manner in each segment.
“So, if you look at our positioning in the home loan segment, our bank’s EMI is among the lowest at Rs 878/ lakh for loans below Rs 30 lakh and Rs 889/lakh for loans above Rs 30 lakh. And the car loan instalment is Rs 1,686 a lakh for a seven-year loan,” he said at a press meet.
The reason why the bank pared deposit rates last month and the base rate last week is that between April 1 and August 31, deposits had grown by about Rs 70,000 crore while the loan book had grown only by about Rs 16,000 crore.
“So, the loan engine was lagging behind the deposit engine and it was not a good idea to be flooded with deposits unless there are optimum avenues for its deployment,” explained Chaudhuri.
The bank has about Rs 50,000 crore as additional investment in central and State Government securities sitting on its books.
“If this (investment in central and state government securities) diminishes by Rs 20,000 crore then that would be the additional credit offtake. Currently, the average yield on these securities is 7.75 per cent.
“So, even if we earn a yield of 10 or 10.25 per cent on the new loans that we generate, we get an extra 2.25 per cent and that should compensate the total sacrifice, which on an annual basis is about Rs 1,250 crore due to reduction in base rate,” said Chaudhuri.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.