It took 10 years for the country’s largest lender, the State Bank of India (SBI) to increase its mortgage portfolio from Rs 89,000 crore to Rs 5,000 billion. Now he is aiming to double that figure to Rs 10 trillion in five years, at a time when lenders – banks and housing finance companies – are engaged in an intense battle to gain market share.
SBI Chairman Dinesh Khara said the bank expects its home loan portfolio to reach Rs 7 trillion by FY 2023-24 (FY24), supported by increased desire among young people from owning a home early in life, increased income and government policies such as reduced stamp duties and subsidies.
“As competition intensifies, we are also strengthening our capabilities. We are putting structures in place to be able to increase volumes and improve our deliveries, ”said Khara.
At present, SBI has a 34 percent market share in the mortgage segment among regular commercial banks and has the most competitive rates (starting at 6.9 percent).
Mortgage loans constitute the largest portfolio of SBI’s asset portfolio, accounting for 23% in December. Of the 5,000 billion rupees, about 4.86 billion rupees is home loans and the rest is financing for builders. Also, buyouts (loans taken on by other players) account for around 23% of the portfolio, but the assets pooled by shadow lenders are a tiny fraction.
One of SBI’s main competitors in this segment is mortgage lender Housing Development Finance Corporation (HDFC). Its assets under management (AUM) stood at Rs 5.52 trillion in December, without discounting the loans it sold. Its portfolio of individual loans stood at Rs 3.51 trillion and loans to legal entities amounted to Rs 1.24 trillion, for a total of Rs 4.83 trillion.
To achieve its goal of doubling the mortgage portfolio, SBI is strengthening its underwriting capacity in order to improve delivery. In addition, a new personal loan management system is being implemented which will reduce the time required for loan recovery. Now, in the category of builder fixed loans, the bank’s turnaround time is five days, while it is 12 days for the other categories of the home loan segment.
The bank is looking to use artificial intelligence (AI), cloud, machine learning and blockchain to propel not only the mortgage industry, but other businesses as well. It is also seeking to initiate a co-loan model for home loans in order to strengthen its presence in the unorganized sector.
Referring to changes in home purchases, Khara said, “When it comes to the demand for home loans, it is a function of the economy and demographics. The younger generation is looking to own a home at a younger age. We have found that 42% of our customers are under 40 ”.
“In the future, we will see a much bigger shift in this direction. The rising incomes of the younger generation, their aspirations and the concept of a nuclear family are the reasons people seek housing at an early age, ”Khara added.
Although the use of credit has grown at a moderate pace, the mortgage segment has done extremely well. And this is causing lenders to be aggressive in the segment because the default rates are quite low and the demand is constant. In addition, SBI’s home loan segment has a bad debt rate of just 0.68 percent. In addition, of the 3.9 million borrowers eligible for restructuring under the Reserve Bank of India (RBI) Covid program, only 10,000 of its clients have resorted to the restructuring option, which s amounts to 2,500 crore rupees.
The average SBI mortgage note size is around Rs 31 lakh, which increased from Rs 25 lakh earlier. Urban, semi-urban and rural areas make up about 51 to 52 percent of total books, while the rest comes from subways. About 72% of its home loan clientele are employees, who are well equipped to honor their commitments, the bank said. Interestingly, around 60 percent of mortgage borrowers from banks have a minimum credit rating of 750. Shares of SBI closed down 0.67 percent at Rs 392.05 each on BSE.