Banks using home loans to expand credit portfolio
KATHMANDU, OCT 01 -
With the financial system enjoying a healthy liquidity position, a growing number of commercial banks are considering housing loan as a way to expand their lending portfolio.
Some of the commercial banks have already rolled out different schemes to sell their housing loan products, while others others are in the process of following suit.
Taking advantage of the festive season, banks have lowered interest rate in the range of 10-12 percent. Considered as one of the safest products, home loan is extended to individuals based on their regular incomes.
Laxmi Bank has recently introduced a 25-year home loan plan, under which new home owners/buyers can repay their loans over 300 equal monthly installments (EMI).
The EMI always plays a greater role in enabling consumers with limited purchasing power to purchase big things. The lengthy payback period of the bank enables even the buyer with lower monthly income to qualify for such loan.
Laxmi Bank said this is a significant step in the consumer finance sector. “Longer the repayment tenure, lower the EMI,” said the bank. “This means we have expanded the base of potential home loan customers, who can now afford to take out a loan because of the lower monthly debt obligation.”
The bank said that the product would provide immediate benefit to new home buyers, especially the young and first time home buyers who are otherwise hesitant to buy a home because of high EMIs.
Similarly, NIC Bank too launched ‘Pre-approved Home Loan’ recently. According to the bank, the products were designed to increase the outreach of the general public to financing on housing.
In the pre-approved system of lending, banks decide the loan amount and interest rate for customers based on their income. “This allows customers to choose the house and automobile without any hassle or doubt about their ability to get finance,” said Sashin Joshi CEO of NIC Bank.
Claiming that consumers’ response to the scheme had been very encouraging and expressed hope that the home loan will account significant percentage in their lending portfolio. “I think it will account for around 10 percent of our total lending portfolio,” said Joshi.
Likewise, home loan accounts for the significant portion of Everest Bank’s lending portfolio. Although the banks have not rolled out specific home loan product recently, it has a special interest in selling retail home loan products where individual loan account for less than Rs 10 million, according to Everest Bank CEO P K Mohapatra.
The banks are rolling out new home loan product at reduced interest rate. While Laxmi Bank has is now offering 25-year-long home loans at 10 percent annual interest, Everest is selling its home loan at interest rates ranging from 10.5 to 12 percent.
Himalayan Bank Limited (HBL) has fixed the interest rate of its home loan at 10.58 percent for three years after which there will be a floating rate for the next 12 year.
CEO of HBL Ashoke Rana said that the fixed interest rate was crucial in winning consumers’ confidence and allay their fears of fluctuation in interest rate in the future. “Our product is getting amazing response from the customers,” said Rana.
Even newer commercial banks have joined the bandwagon, extending home loan, albeit their interest rates are not as competitive as their older counterparts. “We also have appetite for the individual home loan but our interest rate is a little higher than what some other players are offering,” said B N Gharti, DGM of Kist Bank.
Source: The Kathmandu Post
