SBI blinks, withdraws teaser loans

Barely a fortnight after Pratip Chaudhuri took charge as the chairman, State Bank of India (SBI) has decided to withdraw one of the most controversial, yet popular, products in the Indian banking sector in recent times.

Introduced by Chaudhuri’s predecessor, O P Bhatt, in early 2009, the teaser loan scheme will be withdrawn from May 1. The scheme charges a lower rate in the initial years. Teaser loans account for a third of SBI’s home loan portfolio.

The Reserve Bank of India (RBI) has been against such schemes as it fears higher defaults after the rates go up in later years.

The new management said even if a bank thinks a product is good, the regulator has the final word. “One cannot be in a state of perpetual conflict with the regulator,” Chaudhuri said.

Chaudhuri had met the RBI governor and deputy governors after taking charge.
 

NEW RATES
Loan amount (Rs  lakh)	Linkage with base rate	Effective rate (%) per annum
Up to 30	One per cent above base rate	9.50
Above 30 and up to 75	1.25 per cent above base rate	9.75
Above 75	1.75 per cent above base rate	10.25
Source: SBI

In the new home loan scheme, the interest rate on loans up to Rs 30 lakh will be 9.5 per cent, while for loans between Rs 30 lakh and Rs 70 lakh the rate will be 9.75 per cent. The rate for home loans above Rs 75 lakh will be 10.25 per cent.

For auto loans, the rate will be 10.75 per cent. The maximum tenure has been kept at seven years. Both housing and auto loan rates have been linked with the bank’s base rate, making them floating.

Though the effective rate will rise, SBI has offered a sweetener by waiving the pre-payment penalty.

“There’s a feeling among customers that the pre-payment penalty is a hidden charge. We think if the customer is getting a better deal from other banks, we don’t deserve to be there,” Chaudhuri said.

To discourage banks, RBI had increased the provisioning requirement on teaser loans by five times to 2 per cent.

SBI is now in talks with RBI for a waiver. “The regulator says we have to first withdraw the scheme,” he said.

If RBI insists on higher provisioning, the bank has to do it in the fourth quarter itself. The additional provisioning of Rs 537 crore is nearly one-third of SBI’s net profit in the fourth quarter of 2010-11. SBI has disbursed Rs 36,788 crore under the scheme to 400,000-500,000 borrowers.

The additional provisioning can be written back once rates are set higher, that is, after three years, Chaudhuri says.

Despite the withdrawal of the popular product, the management thinks the demand for home loans will continue and 20 per cent growth in the segment is achievable.

“ICICI and HDFC are our principal competitors. Our pricing is quite competitive. Growth in this segment should not be affected,” Chaudhuri said.

Asked if SBI was seeing delinquencies on home loans, Chaudhuri said the slippages were not there as of now. He added it was too early to say if non-performing assets would rise as the portfolio was yet to be ‘seasoned.’