State Bank of India shuns personal loans
Boitshepo Majube | Wednesday November 27, 2013 17:17
The move by the bank not to offer individuals unsecured loans is based on recent statistics that show household indebtedness is extremely high. SBI managing director and CEO, Sophy Mathew has said they have studied the local market and decided to focus on lending financial support to the corporate sector. “Latest data from both the Bank of Botswana and IMF indicate that household lending is under stress, so we will not be getting into household lending for the next three years,” she said at the bank’s official launch in Gaborone yesterday.
Latest central bank statistics show that households accounted for 56.7% of commercial banks’ credit, which stood at P37.9 billion as at August 2013.
Mathew said SBI will lend financial support to the corporate sector, especially mining, using the experience and knowledge of its headquarters in India.
At the launch, Bank of Botswana governor, Linah Mohohlo advised SBI not to follow the trend of lending predominantly to households. “In as much as providing credit to the household sector for consumption smoothing and mortgage financing is necessary, the current lop-sided credit distribution does not accord with the norm,” Mohohlo said at the launch.
She added that the disproportionate lending to households suggest a strong risk aversion by banks, as they tend to prefer lending to salaried employees. “This is so because loan repayments are deducted from source immediately when accounts are credited with salaries,” she pointed out.
Mohohlo said increased lending to the corporate sector will enhance the share of credit to, among others, mining entities in general, which in July this year was as low as three percent and only one percentage point higher than it was the previous year. “Needless to say, it is anomalous that an economy predominantly dependent on the mining sector, such as Botswana’s, has not seen a channelling of funds by banks to the sector to any significant degree,” she said.
This year, the central bank has cut lending rates three times, each by 0.5 percentage points, in a bid to reignite a flagging economy.
Mohohlo said SMMEs and businesses engaged in international trade, particularly between Botswana and India stand to benefit from SBI’s loaning focus. “This business orientation of the new bank should foster the development of enterprises in related sectors of the economy which, in turn, will generate employment opportunities,” she said.
She advised banks to support economic diversification by participating in syndicated loan facilities for large public-private joint ventures. “This can be possible if banks can create savings or investment instruments that attract long-term savings mobilised by pension funds and insurance companies,” she said.
Meanwhile, Mathew said SBI expects to hire 70 employees in the next 2-3 years and five branches in the next five years in Botswana. “We will leverage on good service and low charges to grow our bank locally,” she said. She explained that their charges will be aligned with the cost of operation.
SBI’s launch comes a few months after another Indian bank, Bank of India, opened its doors in Botswana. It becomes the 11th commercial bank in Botswana although one; ABN AMRO is scheduled to pull out next year.