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On Tuesday, Punjab National Bank and Oriental Bank of Commerce had cut their rates.
Last week, Finance Minister P Chidambaram said the government would provide additional capital to PSBs, to enable them to offer loans to the retail segment at lower rates, especially for two-wheelers and consumer durables.
This is a segment where private banks and non-bank finance companies are active. In PSBs, such loans are typically offered only to those who already have a relationship with them, such as a home loan or a car loan or if the customer has a salary account with the bank. Usually, these are bundled with a home loan.
SBI cut the rate on car loans to 10.55 per cent from 10.75 per cent and the processing charge from 0.51 per cent of the loan amount to a flat rate of Rs 500. It also launched a Special Festival Loan for its salary package account holders, for purchase of consumer durables and two-wheelers, where it is offering loans starting from 12.05 per cent.
Corporation Bank reduced the rate on consumer durables from 12.25 per cent to 10.5 per cent. Dena Bank is offering a combination of a car loan with a housing loan at 10.25 per cent and a consumer durable purchase loan with a housing loan at 11.75 per cent. For a consumer loan, in case of a tie-up under their Corporate Salary Scheme, the rate of interest has been reduced by 100 basis points, from 13 per cent to 12 per cent.
Most of the banks have also cut rates on home loans and car loans or reduced the processing charges.
The overall impact on margins on account of consumer durable or two-wheeler loans might not be much, since the share of these in the total portfolio is less. However, since the operating expenses are higher and if PSBs are not able to meet the overall credit standards that private banks have, then it could affect overall profitability, says Vaibhav Agrawal, vice-president, research, Angel Broking.
The problem faced by PSBs in such loans is although these are secured (the white goods or two-wheeler is hypothecated with the bank), repossession is difficult and there is no resale market, says C V R Rajendran, executive director, Bank of Maharashtra. “Recovery is expensive. We can do it only if we collaborate with another agency, maybe a microfinance institution (MFI). But that will push up our cost of operation and transaction costs. This is one segment where all PSBs have failed,’’ he said.
Even if the rates were reduced, which could be possible as the cost of deposits is coming down, with the existing model it will not be possible to achieve growth in volume, Rajendran added.
Vijaya Bank’s chairman, H S Upendra Kamath, said it had yet to decide how much it could reduce on rates for consumer durable loans. However, as it was a small portfolio, any reduction might not have a big impact on margins, he said.
