HDFC, ICICI Bank end 'teaser' home loan rates

The Housing Development and Finance Corp (HDFC), the country's biggest private home-loans provider, as well as ICICI Bank today decided not to extend its 'teaser' or dual rate home loan scheme any further.

The scheme was extended four times since its launch in December 2009.

''The scheme was valid up to 30 November and we decided not to extend it,'' said an HDFC spokesman.

Earlier in the day, ICICI Bank too announced discontinuance of its teaser rate scheme which entails initially cheaper loans for new borrowers, although the rates go up exponentially in subsequent years. ICICI Bank was offering loans at 8.5 per cent for the first year, 9.25 per cent in the second year, and 1.5 per cent over and above the base rate from then onwards.

HDFC had launched the dual rate loan product in December 2009 for new loans, which followed a similar trend.

A couple of weeks ago, there was almost a direct war of words between HDFC chairman Deepak Parekh and O P Bhatt, head of the State Bank of India, the country's largest lender, over the issue. While Parekh was for doing away with such schemes, Bhatt insisted they were profitable for the SBI and would continue.

The Reserve Bank of India too had expressed reservations on 'dual rate' schemes, fearing that they lure unwary clients into financial commitments which they cannot maintain in subsequent years. (See: SBI won't end 'teaser rates' despite RBI's disapproval) 

Some analysts say the move by the top two private sector banks to do away with teaser rates would temper the demand for housing loans and eventually help cool real estate rates in an economy faced with high inflation. However, it was not ascertained whether SBI would follow the example of its private compatriots in the matter.