Dual home loans profitable for SBI, says Bhatt

State Bank of India (SBI), the country’s largest lender, today defended its fixed-cum-floating rate home loan product despite the regulator’s discomfort for such a scheme. It said it is a very profitable scheme for the bank,

“In terms of affordability and risk, this is the best product we have in the market,” SBI Chairman O P Bhatt said today.

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.

Chanda Kochhar, managing director and chief executive officer of ICICI Bank, said teaser home loans formed a small part of the bank’s loan book and so thee move would not have any material impact on the bank. “For us, special home loan is a small product. The norms will have not have any impact on provisions,” she told reporters on the sidelines of an event here today.

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. In February 2009, SBI launched a special home loan scheme wherein the bank charged eight per cent fixed rate for the first year, an initiative meant to deploy the huge funds available with banks. The scheme was further extended on September 30 and would now end in December. Bhatt said the bank would take a call on the scheme when it neared its end date.

Even though liquidity has tightened since and the bank’s surplus liquidity has declined, Bhatt said the situation had not changed enough to call this as an unprofitable or a risky product. It was very much a profitable product for SBI, he said.