SBI margins unlikely to get affected by the home loan scheme
By Joseph Samson
Feb 9, 2009
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Although State Bank of India (SBI) has reduced the home loan rates to 8% under its new scheme, the bank's margins are not likely to get affected said SBI Chairman OP Bhatt.

He further informed that the bank is also planning raise capital but will wait until elections.

SBI is expecting to attract a new customer base of nearly 1 lakh customers through the special home loan scheme. The Chairman said that this addition will also help them to sell other products to these customers and it will subsequently result in a rise in both revenues and savings through lower marketing costs.

As on the third quarter ending on December 31st, the net interest margin (NIM) of SBI reported an improvement to 3.15% from 3.01% during the corresponding quarter in the previous fiscal. Mr Bahtt said that the real estate sector is likely to see a revival in demand with the introduction of the 8% home loan scheme by SBI.

Talking to the chief investment officers (CIO) of top fund houses in Mumbai, Mr Bhatt said that the special home loan scheme is rather going to help the bank to improve its NIM. Normally the bank park its excess funds with the RBI which is presently a return of only 4% and therefore by shifting the surplus as loans, it will be able to earn just double the return. Bhatt said that even if a part of the excess funds are changed into loans, SBI's margins will rise.

However the bank is expected to face a pressure in its short-term margins because term deposit rates for up to three years have been raised. Where as the cut in lending rates is going to impact the entire portfolio.

SBI has short-term bulk deposits of nearly 25% to 30% of the total assets and these high costs deposits will enable the bank to reduce its costs because they get re-priced. As per an industry report Bhatt expects the non-performing assets (NPAs) to rise in the coming times. He stated that NPAs will rise in the short term due to provisioning norms but would return to standard assets once the economy improves.


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