Banks play realty broker for profit- Business News
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Banks play realty broker for profit

Indian banks are aggressively playing the role of realty brokers, offering free home search to potential buyers, in order to increase their lending business and at the same time expand their customer base.

  • Mumbai,  October 6, 2010  
  • |  
  • UPDATED   17:43 IST

Indian banks are aggressively playing the role of realty brokers, offering free home search to potential buyers, in order to increase their lending business and at the same time expand their customer base.

Sudhir Kumar Jain, general manager (retail) at Dena Bank, said that there are many advantages of brokering a real estate deal through a bank.

"First, the main advantage is that unlike real estate agents, public sector banks don't charge any fee or brokerage from the customers.

It's a value- added service - the bank generates business through selling their home loan products. But for the customer, they save the two per cent brokerage," he said.

Jain said that the authenticity of the project is thoroughly verified by the regional branch of the bank. The bank maintains very strict criteria in this regard. For instance, verifying whether all the documents are in place and whether the project has received all the necessary permissions.

"Only after the bank is satisfied with the genuineness of the project does it recommend it to their customers as their own funds are at stake. The chance of the potential customer getting duped by fly- by- night developers is very less while dealing through the bank," he said.

Another senior official of Union Bank of India said that most of the public sector banks have a list of properties developing in their areas alongwith their rates. This helps the customers make the preferred choices by comparing the different projects. "As the bank has most of the project documents before-hand, procuring home loan becomes relatively easy," he said.

The official also added that since the customer is routed through the bank, the developer is also aware that the entire transaction would be done through cheque payment on the contract value and the element of black money is, thus, eliminated.

Most of the private banks have started a separate division to cater to this business segment. ICICI Bank has a division called ICICI Home Search where executives not only help search for the desired property for the customers but also help in negotiating the rates with the developers assurance to the buyer that he would get the loan for it," he said.

HDFC's existing customers, too, send the company listings of their properties when they are put on sale.

Ramesh Bhojwani, a Mumbaibased banking consultant, however, said that in the overdrive to generate non- interest income like service charge, banks would impact their core business in the long- run.

"There are many instances where banks have adopted arm twisting tactics to compel a customer to buy a property to increase their lending," he said.

With property prices in the country going beyond the reach of the common man, it's not just the developer but also the banks, that lent funds to these projects, are being impacted due to declining sales. "It is also possible that in turn, the bank is bailing itself out rather than providing service to the customer," he said.