Mr. T. S. Bhattacharya is a CAIIB and possesses 32 years of rich banking experience. Mr. Bhattacharya has been an SBI man throughout his career. He started with SBI as a probationary officer in 1969 and since then has functioned at various levels. This includes DGM of Merchant Banking, DGM of Global Link Services and also as a representative to SBI’s Jakarta (Indonesia) office. Currently Mr. Bhattacharya is the Chief General Manager of SBI’s personal banking division.

In an interview with Equitymaster, Mr. Bhattacharya gave his views on the current scenario in the housing finance industry, SBI’s strategies and the management’s vision over the next four years.

EQM: What is the disbursement made by SBI in the current year and what is the number of customers & the average loan size? What is the default rate in the company’s home loans business?

Mr. Bhattacharya: Our personal banking loan portfolio size is about Rs 100 bn, of which the majority portion is into home finance (Rs 60 bn). By the year-end, I expect the home finance portfolio to reach Rs 100 bn. Our outstanding loan portfolio stood at Rs 67 bn as on November 30, 2001 compared to Rs 49 bn outstanding as on March 31, 2001. We are not in the corporate financing business and all our customers are largely individual employees working with large public sector companies. 80% of my housing finance portfolio is to salaried individuals. Until now, we have around 111,000 customers (incremental customers since the beginning of the year, excluding employees is 9,000). Our average loan size is Rs 700,000 – Rs 800,000 and the default rate is just 1-2%.

EQM: What trend do you see in the housing finance industry? What kind of growth rates do you think, the industry would be able to maintain in the next five years and what will drive this growth?

Mr. Bhattacharya: Few years back, it was only HDFC and some co-operative banks, which were providing housing finance services. But only HDFC survived as a leader. HDFC in the housing finance markets was like ‘Dalda’ in the retailers market. People in the housing loan market knew only HDFC. But the trend is changing now with the entry of banks and financial institutions. Compared to others, we have the low cost advantage apart from having a strong distribution reach of 8,000 branches. We are closest to the customers through this large network. Over last one year, we have simplified the procedures to a great extent. If the person meets my requirements, I can release the loan within 48 hours to him with the automated procedures.

Housing finance market is expected to witness strong growth rates. Nobody knew SBI a couple of years back. Today, SBI is the second largest lender in this market. With the kind of distribution, SBI has and the immense potential in the market, we will be the number one housing finance company in the next few years. I am expecting SBI’s housing finance portfolio to grow by Rs 50 – Rs 60 bn per year. Our large distribution network, advantage of minimum balance and automated procedures would help in driving the higher growth rates.

EQM: How has competition affected your market share in the sector?

Mr. Bhattacharya: Our nearest competitor is HDFC, which is the most efficient organization. The only advantage we have is the low cost funds and large number of delivery points. Apart from HDFC, ICICI and other public sector banks are also emerging stronger. So to counter the competition we need to become more efficient in terms of delivery.

EQM: What is going to be SBI’s strategy to counter competition in this potentially over-crowded segment?

Mr. Bhattacharya: One immediate strategy is to establish goodwill in the market by improving the delivery time. Apart from that we are trying to build relationship with builders to avoid the issue of interim security. Today, our system is automated to such extent that if the required information is available, I can sanction the loan within 24 hours for loan size of about Rs 600,000- Rs 800,000. For the loan size of about Rs 1.5-Rs 2 m it would take around 3-4 days.

Although, it is a general trend in the market to operate through DSAs (direct selling agents), we don’t appoint DSAs. Customer will have to come to the bank branch. But if the large numbers of individuals are buying houses under the corporate housing scheme, than we can provide personalized services considering the cost advantage. We are not comfortable with DSAs, as in the past we have had bad experiences with them. Being a public sector bank with various regulations and authorities, I can’t appoint the same quality of people which private sector has.

EQM: What has been the impact of a recent slowdown in the economy on housing finance business?

Mr. Bhattacharya: The housing loan requirement has slowed down mainly for IT sector employees. But they are relatively small companies compared to large public sector organizations. Our targeted customers are mainly large size company employees, be it a private or public. Traditionally, we don’t have much exposure to the IT sector employees. So our business has not been impacted by the economic slowdown.

EQM: Do you think the recent VRS in the banking industry has helped in boosting housing finance market, to an extent?

Mr. Bhattacharya: In the last year, 21,000 employees of SBI opted for VRS and they repaid their housing loans. As a result, in the month of April, SBI had huge repayment and we lost interest income on those loans. There was no positive impact as such. Employees who have taken VRS, already own houses, so they don’t need to take finance for purchasing a house.

EQM: Please give us some idea on SBI’s mortgage finance business and what is its growth potential?

Mr. Bhattacharya: There are two types of mortgage finance. One is for creation of an asset and second is for consumption purpose (marriage or foreign travel). But in the second case no asset is created. Somehow in the consumption business, the demand is not very high. This is because as per the Indian psychology, nobody would mortgage the house to travel abroad. Whatever mortgage finance has taken place so far is all for marriage. Our portfolio in this segment is just Rs 2.5 bn.

Housing is the national priority and our focus is to grow that business. Interest rates in housing finance are linked to MTLR (medium term lending rate), whereas for mortgage loans, interest rates are 2.5% above the MTLR. So margins are definitely better in this business but demand is not increasing. Also, in housing loans you get tax concessions whereas mortgage finance is the commercial business where no tax benefits are available. Tax benefits are driving the housing demand in the country.

EQM: What is the average cost of borrowings of the company and what is the funding mix used?

Mr. Bhattacharya: Our average borrowing cost is between 7%-7.5%, which is largely due to low cost deposits. The entire funding is done through deposits and capital is used to the extent of capital adequacy norms. 60% of deposits are time deposits and remaining 40% are demand deposits. In banks, the overhead per employee is reducing and business per employee is increasing due to computerization in the industry. I also have access to the saving account deposits from rural and semi-urban market, which helps me in reducing my borrowing cost further. Our employee cost (including all perks) is much lower than that of ICICI and HDFC.

EQM: In your view, will the increase in competition in the housing finance sector impact margins? At what level do you think the margins will stabilize.

Mr. Bhattacharya: Competition is definitely pressurizing our margins but on the same hand it is making me efficient. It is the brand, which makes the difference. As long as the people have very strong faith in certain brands, they will go for housing loans even at higher cost. But once we built up our brand, we will have the advantage. That time we may not be the cheapest but people would still come to us since we have strong brand and best delivery channels.

EQM: Is this the right time to take a housing loan or is there a possibility of interest rates coming down further?

Mr. Bhattacharya: I think interest rates have bottomed out and there is little scope for rates to come down further. It is the best time to take housing loans now considering the cost advantage and increasing supply in the property market.

EQM: A word on your favourite books/personalities.

Mr. Bhattacharya: My favourite book is ‘Who Moved by Cheese’ - Spencer Johnson. I also like ‘One Minute Manager’ – Ken Blancherd and ‘Thirukuras’ – Thiruvallavur. I admire the life style and thinking of Dr. Ravindranath Tagore.