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Will ICICI's move affect PSU banks?

Feb 08, 2007 07:13 PM IST Business Business

Mumbai: Home loans offered by PSU banks are now one per cent cheaper than India’s largest home loan provider and second largest bank — ICICI Bank. But that may not necessarily mean good news for the home buyer. "I am glad that PSU banks have unanimously agreed to hold home loan rates," Union Finance Minister P Chidambaram said. The finance minister can ask public sector banks not to increase their home loan rates, but he cannot force PSU bankers to sell those cheap home loans. After ICICI Bank hiked home loan rates by one per cent, rates of home loans of PSU banks are much more attractive as they are lower by atleast 1-1.5 per cent. But the question is — can we cash in on the opportunity? A host of PSU bankers were posed the question and a majority of them said that they are unlikely to aggressively market for potential home loan borrowers. The reason PSU bankers are not interested in taking advantage of the opportunity is because at the current rates, home loans is not a profitable product and will impact their margins. Also, most bankers claim that property prices are overheated and lending at this point is risky and the loans can eventually become NPA's. PSU bankers say they are comfortable with their home loan portfolio growing at just 20 per cent. They also admit that thier banks do not have the kind of direct selling agent network that private banks have and the quality of customer service has always been an issue. Experts point out that for the past few months lending rates of PSU banks have been a tad lower than that of private banks, but their combined share in the retail market is still less than 25 per cent and that share looks unlikely to change anytime soon.