SBI won't end 'teaser rates' despite RBI's disapproval
12 November 2010
State Bank of India (SBI), the country's largest lender, on Thursday said it had no plans to do away with its 'teaser rates' for home loans, thus ignoring a call from Housing Development Finance Corp chairman Deepak Parekh to end this practice, and the Reserve Bank of India too evidently frowning on it.
Speaking to reporters on the sidelines of a banking summit in Mumbai, SBI chairman O P Bhatt ruled out lenders collectively deciding to do away with teaser rates. ''The special home loan scheme is a desirable product for consumers and profitable for our bank. No one can claim that the special rate loans are not good for the customer.''
This is in contrast to Parekh, who said at the conference, ''I would like to see it die down, but it must be done universally, because there are many people who talk on a one-on-one basis that we don't like this product. It is a product which has caught the fancy of individuals.''
Teaser rate loans are multi-year loans that bear low monthly repayment in the initial two to three years. It shoots up substantially in the subsequent years, straining the customer's finances and sometimes leading to a default. This was said to be one of the causes of the bubble in the US real estate market that triggered the still-ongoing financial crisis in developed economies.
The Reserve Bank of India (RBI), which has voiced its concern over such products, increased the standard assets provisioning for teaser home loans to two per cent in its second quarter review of monetary policy. It was 0.4 per cent earlier.
Bhatt said the dual-rate product was launched by most banks around 2008-end at the government's initiative, to spur demand during the middle of the financial crisis, and SBI only followed and bettered the offering. When asked whether RBI's norms for additional provisioning on teaser housing loans would impact the bank, Bhatt said SBI was already meeting these norms.