SBI eyes home loans of state govt employees

The State Bank of India (SBI) has adopted an innovative strategy to expand its home loan portfolio and at the same time ensure good credit quality. The country's largest bank is in talks to buy home loans given by state governments to their employees.

Banking sources said SBI is close to signing an agreement with the Kerala government for purchasing home loans of its staff.

This strategy gels well with the Reserve Bank of India's (RBI) advice to banks to watch out for slippages in the backdrop of a sharp rise in home loan disbursements.

Most states provide home loans to their employees and several of them are currently cash strapped, having to follow a very strict public borrowing programme.

Sources said many state governments have shown eagerness to sell the home loans, as it gives them an opportunity to free resources for more pressing productive investments.

SBI is also in talks to buy part of the loan portfolios of other home loan providers as private sector banks and housing finance companies find shedding of loan portfolios a more economic way of generating liquidity at rates much lower than high cost deposits.

It has also tied up with public sector undertakings such as Indian Oil Corporation (IOC) to offer home loan packages for their employees. The credit quality of employees of such organisations is better as they are end-users of homes purchased.

In its annual policy on April 18, the RBI raised the general provisioning to 1 per cent from 0.40 per cent for standard personal loans, housing loans above Rs 20 lakh and commercial real estate and capital market loans.

Similarly, risk weights for capital adequacy on commercial real estate loans has been hiked to 150 per cent from 125 per cent.