Battle on the home front

Kochi: The housing finance sector, which was virtually non-existent in Kerala till the early nineties when it had total annual advances of less than Rs 5 crore, has grown into a Rs 500-crore market during the last five years.

The potential of the market in the state was exploited by commercial banks after the first phase of the global recession. Banks at the national level shifted their focus from industrial lending to low-risk areas in the second half of the nineties. When they were keen on personal lending, housing finance came to be identified as the safest area.

Apart from that, the government boosted the housing industry to help backbone industries like iron, steel and cement. As part of their national agenda, banks started concentrating on Kerala, too, targeting the middle class.

The Housing Development Finance Corporation (HDFC), which entered the scene in Kerala in the eighties, continues to be the frontrunner, though a number of others have surfaced since then to compete with it.

HDFC was the only financing corporation exclusively providing loans for housing when it started operations in Kerala. Traditional banks entered the sector by the second half of the nineties. Housing finance in the state has been showing an upward trend for the last five years, and HDFC was largely responsible for popularising the housing loan concept among the working population with its modern marketing strategy.

The market is expected to touch Rs 800 crore in another two years. HDFCs share in this is almost 50 per cent - the rest going to the State Bank of India (SBI), State Bank of Travancore (SBT), CanFin Homes, Corporation Bank and Union Bank of India. Says HDFC deputy general manager (Kerala operations) C V Ignatius: HDFC has had a 45 to 50 per cent annual growth rate for the last five years, and it made advances to the tune of Rs 240 crore last fiscal.

Ignatius says HDFC has only five branches in Kerala but are competing with traditional banks that have 500 branches. Still we maintain our supremacy in the market. We accept the fact that competition has become tough, as more players have entered the field. But the market is vast and everyone will get his share of the pie.

SBTs advances totalled just above Rs 100 crore and Corporation Bank disbursed Rs 39 crore last year. CanFin Homes stands next with Rs 30 crore. SBI Homes, started as an arm of SBI exclusively for housing finance, comes close. Private banks like ICICI, which entered the fray a few years ago, are still in the infant stage. Private firms, including new-generation banks that offer attractive schemes, are yet to win the confidence of Keralites.

HDFC is also facing the same threat, says Krishnan Nair, an employee with a multinational company in Kochi. We dont feel at home with HDFC or other new-generation banks. They are migrants from other places, whereas we feel at home with bank like SBI, SBT, Catholic Syrian Bank and South Indian Bank. The employees of these banks are from our own locality, and we know them personally - a reason why I approached SBT for a housing loan when I decided to build a house.

Representation for new-generation banks is nominal, except in major cities. They only have franchisees in other places, with whom customers are not so familiar with. Why should we approach a franchisee when we have enough nationalised banks that offer better facilities? Franchisees may disappear, but a bank will not. Procedural hazards may be a problem with nationalised banks, but when we enter into a long-term contract credibility matters more than anything else, says Nair.

National banks are always blamed for procedural delays. New-generation banks offer to sanction a loan within 24 hours if the necessary documents are approved. But with a traditional bank it will take at least a week.

Suresh M Nair, a senior manager at SBTs Kaloor branch, agrees. But he says it is not always an unnecessary delay. New-age banks have more facilities than traditional banks. They can verify documents immediately, as their branches are networked. Most of them depend on private firms for verification. We cant immediately switch over to such a change.

He says private banks have few branches in Kerala and it is easy to connect them through a network. But for traditional banks it is not that easy to connect the large number of their branches. New-age banks charge their customers for facilities like technological upgradation. Their processing fees are higher than those of others and traditional banks have no hidden costs.

But Ignatius doesnt subscribe to this theory. There is nothing like hidden costs; we have nothing to hide. Each and every detail is printed in our brochures, and we will not sanction a loan without giving these brochures to our customers. Apart from that we explain every aspect of the procedure to our customers.

He agrees that the their processing fee is slightly higher than that of traditional banks. But our customers get a better service. We have well-trained staff, something which most traditional banks lack.

CanFin Homes branch manager J Sreekumar says the housing finance market has expanded during the last few years and still there is room for new players. When we opened our branch in Kerala in 1998, we had to compete with the major players of that time. Even then we found our target group and are we doing good business now, thank you. The market in Kerala is huge and the potential is yet to be fully exploited.

Though market trends show a tremendous growth potential for the sector in Kerala, the battle is going to be tough for the existing players. The reason: more and more players are eyeing the market.