ICICI enters housing finance

Mumbai, Mar 22: Term-lending institution ICICI has made its debut in the housing-finance segment by soft-launching schemes in Pune and Na...

Mumbai, Mar 22: Term-lending institution ICICI has made its debut in the housing-finance segment by soft-launching schemes in Pune and Nashik, becoming the first among financial institutions to take the plunge into housing finance. It plans to extend this product to big cities and metros over the next four to six months.

The institution has also started extending loans for consumer durables in Mumbai. These forays into the retail sector are in line with ICICI managing director and CEO KV Kamath’s move to make the institution into a one-stop universal bank. Confirming the step, senior general manager Shikha Sharma said ICICI is offering two slabs for housing loans. The interest rate is pegged at 13.5 per cent for slabs below Rs 5 lakh and 14.5 per cent for slabs above Rs 5 lakh up to Rs 1 crore. Loans are available for corporates as well as individuals. "We have priced our products competitively, as it is a price- sensitive segment," Sharma said.

The Housing Development Finance Corporation is also offeringthe same rates for loans between Rs 2 and 5 lakh, while for loans above 5 lakh, it is offering 14.5 per cent. The State Bank of India, however, offers the lowest rate at 13 per cent for loans between Rs 2 lakh and Rs 5 lakh, while for loans between Rs 5 lakh and Rs 15 lakh, it is offering 14 per cent.

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"With the housing loan segment being credit-intensive, we want to put things in place before we move to Mumbai or Delhi," Sharma said. She said that loans are also being marketed by ICICI-Bank, which is offering these loans to deposit-holders of the bank in these two cities (Pune and Nasik).

Sharma said that soft-launch was necessary as the product was new to the institution. "As the product is new to us, we want to put in all the processes and operations in place before a big splash," she said.

According to her, the new foray will not lead to asset-liability mismatch. "All housing loans below Rs 5 lakh will be taken by ICICI Bank in its books, as they qualify as priority-sector loans for the bank. ICICIwill offer loans above Rs 5 lakh. We raise long-term resources and hence we would not have a problem in meeting mismatches in this sector," Sharma pointed out.

With the entry of ICICI into the housing loans — the traditional domain of non-banking finance companies — competition between banks and institutions are expected to intensify. In recent times, financial institutions have moved into short-term lendings, while banks have moved into project financing in a big way on the strength of their low cost of deposits. Banks, of late, have also started to move into the housing finance sector, after their spreads have taken a beating in traditional areas of lending. The huge untapped potential for housing loans would ensure that ICICI’s decision will be profitable — both in terms of volumes and spreads. The decision to start its operations in non-metros would be possibly to avoid a direct competition with HDFC which has its operations firmly entrenched in the metros. Nevertheless, one should bear in mind thatcommercial banks such as the State Bank which have already entered into housing finance activities would have an edge over FIs as their cost of funds is much lower than the institutions.y