MUMBAI: With banks facing continuing pressure in their most important profitability metric net interest margin (NIM), which on average declined 23 basis points to 3.3-3.5 per cent in the June quarter at the system level, following a steep 100 bps reduction in the repo rate that’s benefited existing borrowers, banks have begun hiking new home loan rates to protect their margins.
In a signal that home loan rates are heading north, coming just ahead of the festive seasons, the largest mortgage player SBI with an AUM of Rs 8.5 trillion, has increased the rates by 25 bps for new home loan borrowers and the second one to do so is Union Bank of India that has upped by 10 bps to 7.45 per cent.
Margin pressures were evident in Q1 results with the sequential fall in NIM varying between 1 bps and 67 bps across the lenders, but on average, at the system level the NIM declined 23 bps in the June quarter. While SBI saw its NIM falling to 3.02, down 32 bps, HDFC Bank’s slipped to 3.35 per cent from 3.46 per cent, ICICI’s slipped by 7 bps to 4.34 per cent, and Axis Bank saw NIM falling by 17 bps to 3.80 per cent. Among the state-run lenders, Union Bank’s NIM declined to 2.76 per cent, down 11 bps.
What is more important is that this shows a strategic shift—normally banks used to charge less from new customers and keep the rates higher for existing customers. But they lost that pricing freedom after the Reserve Bank forced them into the repo-linked pricing mechanism, wherein, when the repo rate is cut, the entire reduction has to be passed onto existing customers within a month, if not immediately. And that’s why the rate hikes by SBI and Union Bank indicate a strategic shift away from low-margin retail home loans, with a renewed focus on more profitable lending segments.
