Home loans: Major contributor to retail banking segment in India

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7 June 2010
Prathima Rajan
Banks experienced single digit growth in home loan sector during last couple of years due to shock wave and post crisis effects from developed financial markets. However it did not take long for top 10 banks in India to accelerate the growth to hit 13.8 percent during 2009-10. Though the industry average for home loans remained at 8 percent, major players have experienced astonishing growth rates like SBI (32%), HDFC (74%) and Axis bank (41%). Home loans have been one of the rapid growing segments in retail banking in India. Banks are adopting teaser home loans wherein the bank offers fixed interest rates for the first couple of years and then switch to floating rates thereafter. While SBI initiated this scheme in August 2009 and was followed by other public and private sector banks. SBI offered homes loans at 8% in the first year, 8.5% in the second and third year. After 3 years the loan, it will be automatically converted and calculated on floating rates depending on the prevailing interest rate in the market. While banks are rolling out new schemes to offer and attract customers, teaser loan is the flavor of the season; this however depends on the liquidity of banks to offer fixed and floating interest rates despite market volatility and without affecting the net interest margin of banks.

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