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Saturday , November 3 , 2012
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ICICI Bank dangles cash-back bait

Mumbai, Nov. 2: Home loan providers are holding out enticing baits to snare new customers.

ICICI Bank, the country’s second largest commercial bank, today offered a 1 per cent cash back on every equated monthly instalment (EMI) for the entire tenure of the loan.

The ICICI product is expected to stir up the highly competitive home loan segment with an innovation that is seen as a strong riposte to Axis Bank’s recent offer to waive the last 12 EMIs if the borrower has maintained an impeccable payment record throughout the tenure of the loan.

The ICICI offer indicates that the bank is ready to turn innovative and aggressive as it seeks to protect its market share in one of the most lucrative loan segments. On the face of it, ICICI’s front-loaded bait looks superior to the back-loaded benefit in the Axis offer.

ICICI Bank is also taking the battle to the State Bank of India, which now offers the lowest interest rate on housing loans.

Some other commercial banks have also waived processing fees on home loans to crank up their market share in this segment.

India’s largest private sector bank today announced the launch of a home loan product with a cash-back offer for new customers, a bait that the credit card issuers have often used to encourage individuals to spend more.

As part of this offer, customers will be provided the option of renewable fixed interest rate for the entire tenure, which is another unique selling proposition in the home loan industry.

Under the offer, 1 per cent of every EMI will be returned to the customer. The cashback will start accruing from the first EMI month onwards and be credited into the customer’s account after the completion of the 36th EMI month. Subsequently, the 1 per cent cashback will accumulate every EMI month and be credited into customer’s account after every 12th EMI month.

Customers can choose to avail themselves of this cashback offering either in the form of a credit to their ICICI Bank account or in the form of a principal pay-down.

Banking circles said the move was a strong indication that ICICI Bank wanted to increase its market share over rivals such as the SBI, which have been making rapid strides in the home loan segment since its revolutionary 8 per cent teaser loan offer in 2009.

ICICI Bank, which had turned cautious in lending after the Lehmann crisis in 2008, had only followed the SBI in bringing out a similar teaser home loan scheme.

“It has been a follower until now. The latest offer shows that the bank is going back to its ways of being a trendsetter,” one banker said. In August, the lender had announced a slew of initiatives that included a 24x7 electronic branch among others.

Chanda Kochhar, ICICI Bank’s managing director and CEO, has in the past year taken various steps to improve the bank’s market share in the less risky segments such as home and auto loans even as the bank has brought down its exposure in categories such as personal loans.

As a result, the home loan book of ICICI Bank has grown from Rs 59,462 crore in the first quarter of this fiscal to Rs 61,391 crore, a sequential growth of 3 per cent.

The strategy has worked well for the private bank as it recently reported better-than- expected numbers for the second quarter of this fiscal.

Apart from the cashback offer, customers have also been given the option to renew their fixed rate loans for tenures of 2, 3, and 5 years at a zero conversion fee within 30 days of completion of the initial fixed rate tenure. They can choose to renew this multiple times till the completion of the tenure. In case the customer decides not to renew, the loan will move to a floating rate by default.