The Financial Express
By Elaine Moore and Tanya Powley
India's largest lender, State Bank of India, is set to enter the UK residential mortgage market in August following the bank's expansion of its international business last year.
SBI came under scrutiny for offering "teaser" home loan rates, which are initially low but then escalate, to domestic customers in 2011, leading the Indian regulator to fear the country might experience a repeat of the US subprime loan crisis.
The bank said that it planned to take a conservative approach to lending overseas.
After nearly 90 years in the UK, SBI increased it range of services last year, increasing its branch network from seven to ten.
Rajnish Kumar, head of State Bank of India UK, said that the financial crisis and subsequent increase in banking sector regulation had provided an opportunity for smaller banks.
"The market has become more prudent," he said. And this fits in with our model and what we want to offer."
But new entrants to the UK's mortgage market have struggled to compete with the country's largest lenders, and brokers said that SBI's limited presence on the high street — it is targeted mainly at the Indian diaspora — could restrict its impact in a competitive industry.
Mortgage rates have risen in recent months as wholesale funding has become more expensive for banks to access. Three-month Libor, the rate used for lending between banks and pricing variable-rate loans, has increased from 0.83 per cent to 1.09 per cent since August 2011.
Metro Bank, which promised to revolutionise high street banking when it opened in 2011, managed to sell just 100 mortgages in its first 15 months.
SBI could be in a better position than its rivals if it can use retail deposits to fund its lending. The bank appears to have concentrated on boosting its share of the savings market last year by offering some of the best rates available, paying out up to 5.75 per cent on money held for five years. Its buy-to-let mortgage range, also launched last year, has remained competitively priced.
"Any bank that is not too dependent on the wholesale markets has a significant advantage over those banks that do, and can be more competitive as a result," said Ray Boulger of mortgage broker John Charcol.
SBI's success will depend on the competitiveness of its rates as well as its lending criteria. Bank of China, one of the world's largest banks, began offering mortgages in the UK in July 2009 to great fanfare, but has failed to gain significant ground due to restrictive criteria.
"Our experience so far with new entrants is that they are quite cautious and don't have a big appetite to lend," said Mr Boulger.
In a visit to the UK this week, Hemant Contractor, SBI MD, said the bank had not considered bidding for UK bank branches sold by government-backed banks, and favoured a conservative approach to expansion overseas.
Despite emerging from the global credit crisis in relatively good shape, India's largely state-owned banking sector remains under pressure over fears that double digit inflation at home could lead to greater defaults on loans.