Lower Rate A Business Booster In Hard Times

Home loan interest rates have reduced over the last few months – at a time when the entire world went through one of the toughest phases. The economies have just begun reviving. A lower interest rate is the need of the hour to support the nascent resurgence in the Indian economy, says SBI Chairman Dinesh Khara in an interaction with Outlook Money. Excerpts from the interview:

Interest rates are going down for an extended period. How long are you expecting it to last?

The home loan interest rates have been moving southwards in the last few months. Just 18 months back home loan interest rates were hovering on 8 per cent. The adoption of EBR as the benchmark for interest rates has led to a significant dip in interest rates of around 60 bps.

The present low levels of interest reflect the liquidity overhang in the economy on account of various measures taken by the government to help the economy sustain in challenging times. The lower interest rates have, in fact, helped in driving the housing loan business in metros as well as other centres. I believe that the lower interest rate regime would continue for some more time.

The attractive rate of interest and the freebies from the developers have boosted the sentiment in the real estate market and consequently the home loan portfolio of lenders including SBI.

Do you think the decline in interest rates will have a positive impact on the real estate sector?

Since the decision to invest in a residential home is a major financial decision taken once in a lifetime, the interest rate plays a pivotal role as it is a long-term liability for individuals. The home loan segment has a 25 to 30-year repayment commitment, a small cut in interest rates results in substantial savings over the life of the loan. The reduction of interest rates in the recent past, therefore, has changed the market dynamics in favour of prospective homeowners.

The outcome of the lower interest rate has been quite satisfying to us as lenders, as well. It has improved market sentiments and enhanced the affordability of the customers. We have witnessed the positive impact of interest rate reduction in the growth in home loans in our bank. Our home loan book has posted the best ever performance in home loan sourcing, sanctions, and disbursements in December 2020.

The low interest rate leading to heightened customer demand, consequently, has had a positive impact on the construction and related industries.

What is SBI’s strength in the highly competitive home loan market? Do you see it as an important and core component of your business?

In the last 10 years or so, our home loan product has been the most sought after because of two significant factors – trust and transparency.

We have surpassed the `5-trillion mark in home loan in January 2021 only because of customers’ faith and trust in the SBI brand. The RE business has seen a fivefold increase since 2011. We are grateful to the loyal customers who have helped us to garner over a third of the home loan market. We are confident of achieving the next `5-trillion in much lesser time.

Our customer-centric approach with the best offerings in the form of tailor-made products and attractive interest rates have been the key to our leadership position. We do acknowledge and appreciate the healthy competition but with our brand loyalty and huge client base, we have been the undisputed market leader in this space since 2014.

The continued customers’ confidence in SBI home loans is a major strength that keeps us motivated to deliver customer satisfaction and grow our business.  

SBI has seen quite a rally in the stock market last month. What are your expectations?

Stock markets and share prices, in general, are a reflection of the underlying recovery in the Indian economy and earnings profile. I believe the valuation of SBI can still be better. We continue to be focused on improving the bank’s performance metrics and hope that the market will realise the inherent value of the bank in course of time.

What are your views regarding economic recovery?

We have lived through one year since the outbreak of Covid-19 pandemic in India. Since mid-March last year, the economy has been in various phases of lockdown which has progressively been relaxed. As of today, almost all sectors of the economy have reopened and labour and goods mobility have been restored.

The prolonged lockdown in the first quarter and second quarter has nonetheless taken a toll in terms of impacting production, wages, and general loss in consumer and business confidence. The real Gross Domestic Product (GDP) is likely to contract by 7.6 per cent in 2020-21 but it is expected to recover in 2021-22 when it is likely to grow in excess of 9 per cent.

The economic outlook has turned towards the positive with certain riders notably the resurgence in active cases in certain pockets, notably Maharashtra. Since Maharashtra accounts for almost one-fifth of the country’s total GDP, disruption in Maharashtra will impact overall GDP growth in FY22. At the same time, domestic vaccine production capability is sufficient cause for optimism for a sustained economic recovery.

Rural demand is likely to remain resilient on the good prospects of agriculture. Urban demand and demand for contact-intensive services are expected to strengthen with the substantial fall in Covid-19 cases and the spread of vaccination. Consumer confidence is reviving, and expectations of the manufacturing, services, and infrastructure sector remain upbeat. The fiscal stimulus under AtmaNirbhar 2.0 and 3.0 schemes of the government will accelerate public investment.