Home banking

ELIMINATING MISTRUST

Of course,the customers are not complaining. “This is a good scheme as it facilitates the entire process of searching for a home smoothly. And,unlike property brokers,the bank is an institution which takes care of our money. This particular factor automatically instills confidence in the property,” says IT professional Juri Das. She adds that with property dealers,there is always an element of mistrust and one keeps wondering whether there is a nexus between the developer and the property dealer. However,one is inclined to have faith in banks,where people have been parking their money for many years,she says.

Her views are endorsed by banking consultants who say that it is a value-added service that not only helps banks increase their loan portfolios,it also makes sure that customers get properties that are clean (read above board) and not involved in any dispute. Analysts feel that this is clearly a win-win situation for both.  

MUTUALLY BENEFICIAL

Several private lenders,such as ICICI Bank,HDFC Bank,Kotak Mahindra Bank,and Axis Bank,have been providing this service for well over a year and have had good results,says Abizer Diwanji,executive director and financial services head at KPMG. “It is an agency business. I don’t see any harm in this. Banks are providing a service to their customers with the aim of increasing their loan portfolio. This has been happening for more than a year,” he says.

And the process,as bankers say,is hassle-free for customers. Banks facilitate the entire procedure — from searching for the desired home,taking the customer to the property for a recce,to introducing them to the developers of the project. And once the home is zeroed in on by the customer,the banks also try to negotiate the price with the developer.

According to banking consultants,developers also place their trust in banks because of the stringent KYC (know-your-customer) norms followed by them. Though banks don’t charge anything from customers in most of the cases,they do take their share from developers. Another advantage of such an arrangement is that the developers earn a reputation of credibility among prospective buyers because of the endorsement of their projects by banks.

PSBs STILL WARY

It is mainly private sector banks which are aggressively venturing into this area. Public sector banks,barring a few,have stayed away so far because,analysts say,they believe banks have no business to be in the business of realty.

“Mostly private sector banks are doing it. When you finance a property,then you are keen to make sure that the project takes off well. Therefore they (banks) have ventured into this area. Moreover,there are retail loans which go bad. In such cases,banks repossess the property and then they want to resell it. That is one of the other reasons for venturing into property brokering,” says a public sector bank official,who does want to be named.

Many private banks have also established a separate division for facilitating home searches,such as ICICI Home Search,which helps customers purchase property while also helping him negotiate rates with developers. The bank also provides loans to its customers for the purchase.

A senior State Bank of India official says that his PSB is also helping customers with property purchases,but on a smaller scale compared to private sector banks. “Yes,we have seen this trend going up,particularly in Mumbai where land acquisitions land up in dispute. So,we have also started doing it. But till there is no clearance on land,and we are absolutely sure that the land is dispute-free,we do not give loans for projects. Customers,therefore,have more faith in us. Whatever projects we finance,we encourage our customers to go for them… It is on a project to project basis. This certainly helps us increase our customer base,” says the SBI official.

NOT SUSTAINABLE?

At the same time,real estate consultants don’t seem to be too convinced with this trend. According to them,banks should focus on their core competency,which is providing financial services. “They (banks) will not be able to provide the service in the long term as it is just a product for them to sell. But,if they come across any issue regarding developers,say in documentation,these people (banks) will not be able to serve the customers,” says Santosh Kumar,CEO (operations) and managing director north India,Jones Lang Lasalle.

He adds that while banks may facilitate finance,a property dealer knows the market,he understands it and advises accordingly. “They (property dealers) would know about the product they are selling because they have been in the business. It is not the job of a bank to provide property. As far as free services are concerned,a lot of property dealers do not charge brokerage from customers. It is not about brokerage,it is about the services being provided,” Kumar says. Foreign banks like BNP Paribas,Citibank and Standard Chartered have also tried to enter the segment and set up full-fledged portfolios for home searches. “But they have not taken off very well,” says Kumar.

A similar opinion is voiced by Realtech Group CEO Rohit Malhotra. He says that banks should not mix their businesses and should focus on their core competency. “They are merely trying to increase their loan portfolios.” But other developers don’t seem to be complaining as the trend increases their business,especially when the real estate sector has only now started on a slow path to recovery. With property prices rising even as sales head south,banks are being impacted because they fund these projects.

“This is a welcome move as this will help home buyers identify their desired location and also help facilitate financing,” says a spokesperson for DLF.  Moreover,the scope of black money is also ruled out as developers are aware that with financing coming from a bank,the transaction would be done through cheques.

Shruti Srivastava@expressindia.com