|
| RBI again raps banks on teaser loans |
| BS Reporter / Mumbai Feb 12, 2011, 00:16 IST |
|
The Reserve Bank of India (RBI) has once again expressed its discomfort over teaser loan rates and questioned banks’ business model for offering such schemes.
“Some banks are taking deposits at an interest rate of 9 per cent and giving long-term loans, especially home loans, at 8.5 per cent. I don’t know what type of accounting is needed to show that this is not a very profitable business,” RBI deputy governor K C Chakrabarty said, while addressing a seminar on International Financial Reporting Standards.
In October, RBI had raised the standard provisioning requirement for teaser loans five-fold, to two per cent, to discourage banks from offering such schemes. Teaser loans are those which charge lower interest rates in the initial period and a higher one in later years.
State Bank of India (SBI), the country’s largest bank, has been running such a scheme for the past two years. SBI tweaked the scheme following the increase in provisioning requirement. It has since written to RBI to exempt these from the requirement.
Its defense of the scheme is that it has helped the common man. SBI chairman O P Bhatt recently said, at the Word Economic Forum in Davos, that almost 80 per cent of the home loans given by SBI weree below Rs 10 lakh, which meant the ‘aam admi’ was being empowered. He said the bank had given home loans to nearly 300,000 people in India.
“I am not fighting with RBI, but only clarifying. We only gave a discount on the rate for the first two to three years and the rate is higher than the cost of my funds. So, what is wrong in what SBI does?” Bhatt had said.
However, the banking regulator believes such schemes expose banks to the risk of defaults in future, as the borrower might not be aware of the scale of increase in monthly installments as interest rates rise. Most lenders which had offered such home loan schemes had then withdrawn these, such as HDFC and ICICI banks, following the regulator’s expressed concern.
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
