They were once ignored, but retail customers are now the darlings of banks and financial institutions. The slowdown in the global and domestic economies and high interest rates have prompted corporate clients to tap into other channels including foreign sources, like External Commercial Borrowing (ECB), to raise funds.
This has left banks stuck with huge funds which would reward them with little return. On the other hand, banks face a serious problem of surging Non-Performing Assets (NPAs) in their books as the economic downturn hit corporate profits.
Enter the retail customer. It is such potential borrowers who were longing to make investments in houses, automobiles and other long- and short-term investment opportunities, including gold coins.
Cheaper funds
With a cut in the Cash Reserve Ratio (CRR) announced last Tuesday — by 25 basis points to 4.25 per cent — the Reserve Bank of India (RBI) has ensured that the banks have cheaper funds with an addition of Rs. 17,500 crore to their coffers. This is available to investors in the festive season. This cut apart, in this calendar year alone the RBI injected around Rs. 97,000 crore by reducing the CRR, which stood at 6 per cent at the start of the year, to 4.5 per cent in three tranches till September. The CRR is the proportion of total deposits a bank has to keep with the RBI as cash.
To add to the festive mood, these banks and finance companies have either introduced festive offers or reduced interest rates in the last one month. Reduced interest rates hugely improve sentiment and reduce some cost, but the decision to buy a house depends largely on property price, and not interest rates or special festive offers on rates alone. The reason is most housing loans are on a floating rate basis, hence interest rates could move up or down based on the rates in the economy as housing loans are long-term loans stretching up to 20-30 years. However, once a property is purchased at a particular price, the price is ‘permanent,’ and hence one generally takes a decision to buy a property or otherwise, based on price.
With many offers available, one can narrow down choices to the best lender for a home loan this festive season. Buying a house cannot be impulsive and requires a great deal of planning and involves substantial financial considerations.
However, the story of other consumer products, including buying a car, is very different. Along with some need, it is more a case of impulsive buying. Most of these products are branded — unlike property — and are purchased with a loan which is short term in nature, if at all one is availed. The interest rate cut, of course, does encourage such impulsive buying.
