 "Housing finance firms approach NHB, say banks poaching customers")
Alarmed by the increasing incidence of their housing loan customers shifting loyalty to large banks, housing finance companies (HFCs) have approached realty regulator National Housing Bank (NHB) for reprieve. In a letter to NHB, the HFCs pointed out that in the absence of a level-playing field in the market, large banks were luring away their customers with lower interest rates.
Confirming the development, NHB's chairman and managing director R V Verma said: "We are serious about this issue. We are looking into the extent of the problem, categories in which the loans are being taken over and the impact of it. When this data is available, we will analyse the situation and look for solutions."
According to the HFCs, their business has been affected by the 'interest rate-carrot' offered by large banks - especially the public-sector lenders - and that they are unable to compete with them.
The cost of borrowing for HFCs is much higher than banks, since the former do not have access to low-cost deposits. Because of this, HFCs cannot offer lower interest rates than banks.
HFCs are non-banking financial companies regulated by NHB and have been exempted from the requirement of registration by the Reserve Bank of India (RBI).
"Unlike big banks who offer multiple services and have access to larger amount of funds, we cannot play the 'low-interest' game. The only way we can attract customers is through better services," said the head of a small HFC.
According to available data, the interest rates charged by banks range from 10.15 to 12 per cent on an average. On the contrary, HFC's rates are between 11 and 16 per cent. So naturally, customers find banks more attractive and, hence, move out, HFC executives point out.
Industry sources say that although it is the medium and smaller HFCs that have borne the brunt of their accounts being 'snatched' away this, larger HFCs are also affected.
"While the large HFCs are also partially impacted, they have a brand value attached due to which the stickiness of customers is higher for them," added an industry official.
NHB data shows that over the past 25 years, there has been a big jump in housing finance in India. 'Report on Trend and Progress of Banking in India' by NHB showed that the outstanding housing loans of HFCs rose from Rs 25,326.01 crore on March 31, 2000 to Rs 2,85,711 crore on March 31, 2013.
Similarly, for scheduled commercial banks (SCBs), the figure rose from Rs 18,524.88 crore to Rs 4,62,200 crore during the same period.
Confirming the development, NHB's chairman and managing director R V Verma said: "We are serious about this issue. We are looking into the extent of the problem, categories in which the loans are being taken over and the impact of it. When this data is available, we will analyse the situation and look for solutions."
According to the HFCs, their business has been affected by the 'interest rate-carrot' offered by large banks - especially the public-sector lenders - and that they are unable to compete with them.
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"We do not have the financial muscle to offer very low interest rates. Hence, if this trend continues, our core business of housing finance will be affected, leading to a shrinking top-line," said the CEO of a mid-size housing finance firm.
The cost of borrowing for HFCs is much higher than banks, since the former do not have access to low-cost deposits. Because of this, HFCs cannot offer lower interest rates than banks.
HFCs are non-banking financial companies regulated by NHB and have been exempted from the requirement of registration by the Reserve Bank of India (RBI).
"Unlike big banks who offer multiple services and have access to larger amount of funds, we cannot play the 'low-interest' game. The only way we can attract customers is through better services," said the head of a small HFC.
According to available data, the interest rates charged by banks range from 10.15 to 12 per cent on an average. On the contrary, HFC's rates are between 11 and 16 per cent. So naturally, customers find banks more attractive and, hence, move out, HFC executives point out.
Industry sources say that although it is the medium and smaller HFCs that have borne the brunt of their accounts being 'snatched' away this, larger HFCs are also affected.
"While the large HFCs are also partially impacted, they have a brand value attached due to which the stickiness of customers is higher for them," added an industry official.
NHB data shows that over the past 25 years, there has been a big jump in housing finance in India. 'Report on Trend and Progress of Banking in India' by NHB showed that the outstanding housing loans of HFCs rose from Rs 25,326.01 crore on March 31, 2000 to Rs 2,85,711 crore on March 31, 2013.
Similarly, for scheduled commercial banks (SCBs), the figure rose from Rs 18,524.88 crore to Rs 4,62,200 crore during the same period.