06 Sep 2012, ET Bureau.
MUMBAI: Axis Bank has opened a new front in the fast-growing home loan market by promising to waive the last 12 equated monthly instalments , or EMIs, if repayments are done on time, a move that could prevent customers from shifting to rivals offering lower rates and help the bank grab market share from them.
The bank, which aims to raise its retail loan portfolio to about 30 per cent of total from less than a fifth now, said this offer is available for those who borrow under floating rate of interest and where payments are on time. “The idea is also to check the churn in the home loan portfolio,” said Jairam Sridharan, head consumer lending and payments at Axis Bank. “With no pre-payment penalty, customers are shifting loans to take advantage of the interest rate arbitrage between banks. This product will also help us retain customers.”
India’s home loan market, estimated at more than Rs 4 lakh crore, is the most competitive segment for lenders with banks and mortgage company HDFC turning aggressive with offers . SBI and HDFC fought bitterly with teaser rates to capture market share. Also once-dominant ICICI Bank is now crawling back after reducing exposure after the 2008 credit crisis. “SBI has been very aggressive in the home loan space. There has been flight of customers from other banks to SBI,” said an analyst not wanting to be identified. “HDFC has a 17 per cent market share; State Bank of India has a 19 per cent market share,” he said.
Axis, a predominantly corporate and infrastructure focused lender, is attempting to balance its portfolio as some investors question the wisdom of a skewed portfolio. Although there are many segments in retail such as auto, personal and other loans, the attention is on home loans since the default rates are the lowest. In a country where borrowers prepay loans, this may not be such a great offer. But Axis bankers say that with sky-high real estate prices, there’s hardly any scope for pre-payments. “With the appreciation in the property prices, it is becoming tough for customers to prepay their home loans. Most home loan borrowers are now in their early 30s. To incentivise customers to maintain good credit behaviour, we have launched this,” Sridharan said.
The Axis Bank product would be offered at the same rates as the regular loan products and would be applicable to new customers under floating rate option. The EMI waiver would be offered to all loans with an initial tenure of 20 years or more and those that have crossed 15 years with Axis Bank. Any customer who pays EMIs on time would be automatically eligible for the benefit. A customer taking a Rs 50 lakh home loan at 11 per cent floating rate, the EMI per lakh of loan size would be Rs 1,032. If the customer takes a ‘happy ending’ home loan, the EMI waiver would be worth as much as Rs 6.19 lakh.