Bank of Baroda home loans
Home loans record the highest CAGR in the last 5 years
Home loans have been the highest contributor in the growth of bank credit in 2016-17. The total amount of home loans extended by banks stood at `8.6 trillion in the financial year, recording 15% higher disbursals. It is home loans that have recorded the highest compounded annual growth rate (CAGR) in the last 5 years. They now constitute 12% of all bank credit and they have registered CAGR of over 16%. The share of housing in the bank credit was only 9.26% on March 2012 and it has been rising over the years. Every bank’s focus has been on retail.
The total gross domestic advances of Bank of Baroda increased to `3066 billion in the last financial year, recording a yoy growth of 7.2%. Retail business registered 19.50% share in the gross domestic advances.
Housing loans of the bank recorded 20.83% yoy growth in FY 2016-17. According to Mayank Mehta, ED of the bank, the share of housing loan segment is the highest at 59.16% of the bank’s retail loan portfolio. Other mortgage loans, auto loans, education loans and personal loans collectively constitute the remaining around 40% of retail portfolio of the bank. Home loans registered yoy growth of 31.4% for priority sector and 9.91% for non-priority sector.
Says Mehta: “The share of home loans in total retail loans of the bank has recorded consistent rise in the last 5 years. It kept rising every year, from 42.17% in 2012-13 to 42.50% to 42.95% to 49.10% and finally to 59.16% as of March 2017.”
The operating units of the bank are putting all out efforts for canvassing retail loans on an ongoing basis. The bank had launched extensive lead generation campaigns using both digital and social media to generate home loan leads, which can be converted to sanctions/disbursements. During the last financial year, demonetization had affected the retail lending business to some extent. However, sizeable growth in retail loans was observed in the last quarter of the last FY. Explains Mehta: “Substantial growth of retail loan portfolio during Q4 in FY 2016-17 may be attributed to strategic shift and focused approach adopted by the bank towards aggressive selling strategy by way of introduction of special takeover campaign in respect of housing loans with top up facility, pre-approved loans for liability customers, outbound tele-calling system for generation of leads, etc coupled with competitive MCLR linked interest rate being lowest at 8.35% wef 7 January 2017.”
In addition, there was close monitoring, follow up with regions/branches for speedy sanction and disbursement of retail loans. Redesigning of retail loan products was done in terms of increase in loan limits/ income multiplier/Fixed Obligation Income Ratio.
The bank has also undertaken aggressive tie-ups with builders/DSAs. There has been empanelment of digital DSAs for home and educational loans, rationalization of processing charges in retail loans and top up program for existing home loan customers. Mehta says the bank has also undertaken hassle-free special home loan takeover campaign with an option of additional top up loan facility. Pre-approved top-up limit of `20 billion was offered to the bank’s existing 50,000 home loan customers, having satisfactory track record. “We established outbound tele-calling system for generation of leads. Outsourcing of Contact Point Verification was done in Mumbai on a pilot basis. Retail portfolio purchase was resorted to. We also modified product guidelines for OD/ loan against property by inclusion of nonindividuals in the scheme issued. There was pan India roll out of pre-approved credit limits in housing, auto and personal loan) for liability customers,” adds Mehta.
The bank’s NPAs in retail segment got reduced to 3.41% as of March 2017 from 3.57% a year ago. Its NPAs in home loans have reduced marginally at 2.43% in the last financial year. Outbound tele-calling system for collections was set up by the bank, which has already contributed and will help in improving the recovery position thereby reducing the NPA level going ahead. Mehta says: “We have introduced risk based pricing in retail loans so as to maintain the retail asset quality. Risk based pricing of home loan/auto loan/mortgage loans has been linked to credit score. We have also introduced risk based pricing system in retail loans to ascertain credit worthiness of customer at the time of sanction of the loan so that the asset quality could be maintained for entire tenure of the loan. After implementation of this system, the quality of new sourcing of retail loans during FY17 has also improved significantly.”
The bank expects growth in home loans across all geographies and customer segments. Says Mehta: “We have set a growth target of 31% growth under home loans segment during the current financial year.”
Mayank Mehta believes the quality of new sourcing of retail loans has improved significantly after the bank has implemented risk based pricing system