Foreign banks compete for greater share of mortgage market

HSBC India cut mortgage interest rates by 10 basis points (bps) to 6.45% per annum. This rate will be applicable on balance transfers by existing customers of other lenders. Citi offers home loans starting at 6.5%, as does Shinhan Bank, based in South Korea.

Taking advantage of record interest rates and higher affordability of housing, foreign banks operating in India are aggressively entering the mortgage market. As the holiday season approaches, some of these lenders have announced lending rates equivalent to the lowest in the industry.

HSBC India cut mortgage interest rates by 10 basis points (bps) to 6.45% per annum. This rate will be applicable on balance transfers by existing customers of other lenders. Citi offers home loans starting at 6.5%, as does Shinhan Bank, based in South Korea.

Kunal Sodhani, AVP, Global Trade Center, Shinhan Bank India, said the lender was offering home loans starting at 6.5% for a term of up to 30 years. The bank has been active in the retail lending segment for four years and currently has over 4,500 clients in six branches in India. “The interest rate trajectory is perhaps at an all-time low and also due to the current holiday season, this remains the best time to avail of home loans at such attractive rates,” Sodhani said.

Balance transfers have proven to be a preferred option for foreign banks because they are easier to find. They are also considered to be more secure because the lender gets an overview of the borrower’s repayment history.

In addition, the migration to an external pricing regime linked to benchmarks led to better transmission of lower rates by banks. Forced to link their mortgage rates directly to the repo rate or other external benchmarks, banks have become more competitive in terms of pricing than their non-bank counterparts. This is another factor behind the upward trend in balance transfers.

Of course, the weak demand for credit in other segments also plays a role. Prakash Agarwal, director and head of financial institutions, India Ratings and Research, said that while some foreign banks have historically been active in the mortgage market, their presence is increasing for two reasons. “Firstly, there is a limited take-off in other segments. Second, this asset class has proven its resilience over time. The cost of credit and defaults in this segment were among the lowest, even during the pandemic. This is an additional incentive for lenders to enter this segment.

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Priscilla C. Carnegie