Year 2009 has been a significant year to showcase RBI’s success in regulating the banks in India. Most banks have been cautious with their lending to risky profiles. Certain unsecured loans were not sold at all. This has helped almost all the banks to be more powerful as their non-performing assets have come down.
Year 2009 saw most of the banks reducing the loan rate for almost all their loan products. The exception has been the credit card rates which have gone up. Most private and foreign banks also saw reduction in loans to individuals and risky corporate accounts.
Reduction in Loans Portfolio
This is the most significant happening with respect to the loans disbursed to individuals. Teams selling unsecured individual loans like personal loans and credit cards were disbanded in large scale in many private and foreign banks. The same was true for NBFCs selling personal loans.
Sales teams in automobile showrooms (both 2 wheelers and 4 wheelers) literally vanished overnight after the full effect of the global financial crisis was felt in January 09.
The objective for banks to go for the strategic reduction in sales in these fronts was to reduce the overall risk in their loan portfolio.
Government Intervention
The situation at the peak of the crisis was so heavy that banks were hesitant to event park their cash in the money market. This lead to the overnight rates touching a high of 20%.
It required Government intervention in the form of assurance of the banks’ stability to reduce the rate in the money market. RBI on its part reduced the CRR and SLR rates to increase the liquidity in the market.
Lending Rates Down
There has been an across the board reduction in the prime lending rates for all types of banks. RBI has published the following data with respect to the lending rates.
| Movements in Bank Lending Rates | ||||||
| Lending Rates | October 2008 (%) | March 2009 (%) | April 20, 2009 (%) | October 15, 2009 (%) | Variation as on October 15, 2009 | |
| Over October 2008 |
Over April 20, 2009 |
|||||
| Public Sector Banks | 13.75-14.75 | 11.50-14.00 | 11.50-13.50 | 11.00-13.50 | 1.25-2.75 % | 0.50% |
| Private Sector Banks | 13.75-17.75 | 12.75-16.75 | 12.50-16.75 | 12.50-16.75 | 1.00-1.25% | 0 |
| Five Major Foreign Banks | 14.25-16.75 | 14.25-15.75 | 14.25-15.75 | 14.25-15.50 | 1.25% | 0.25% |
The biggest reduction as can be seen, has been in the public sector banks.
Housing Loans at 8 to 8.5%
State Bank of India came out with the 8% loan for housing. The rate was to be fixed for the first year and then would be shifted to the prevailing market rates. The condition was that foreclosure was not allowed for the first 5 years. This was a major hit among first time home buyers.
Many of the PSU banks followed suit with the same loan. This helped the PSU banks to garner a major stake in the home loans segment. This segment had traditionally been dominated by private banks.
Private banks have been reluctant to compete with the PSU banks till the last quarter of 2009. Only now have HDFC and ICICI announced their own low rate home loans at 8.5% fixed for the first 2 years.
TATA Nano Booking
The House of TATA created a landmark in the inaugural booking of their much awaited small car Nano. Beating the trend of reduced lending for automobiles, many banks vied to become the preferred partners to offer loans for the car’s booking. The loans were structured such that the interest only was to be paid till the car was delivered.
The marketing blitzkrieg that followed lead to the booking of over 1,50,000 cars. Most of the customers were happy to have booked their first car. Banks were happy as they got a committed client base. The happiest were the House of TATAs as they got over Rs.1,500 crores in cash for products that were to be delivered over the next 1.5 years.
End of Year 2009
Signs of hardening the interest rates were seen in the RBI monetary policy, which increased the SLR by 1%. Though there was no real impact on the cash flow, as most banks already had a higher component of SLR qualified investment, there was wide spread fear that the interest rate were to go up shortly.
This has not happened till date, even with the inflation for agricultural products running at 17%. The Government has also promised that the support measures for the country’s economic growth will continue.
Summing Up
Year 2009 has been a significant year to showcase RBI’s success in regulating the banks in India. Most banks have been cautious with their lending to risky profiles. Certain unsecured loans were not sold at all. This has helped almost all the banks to be more powerful as their non-performing assets have come down. Banks in India are now poised to take charge and grow aggressively whenever the global revival of businesses happens.
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