SBI extends teaser home loan scheme by a month

State Bank of India (SBI) has extended its ‘teaser rate’ home loan scheme — a popular, yet controversial product — by a month.

The home loan scheme offers a discount in the interest rate for the first three years. The interest rate structure of the scheme remains unchanged, said a top SBI official.

For the first year, the interest rate for loans up to Rs 30 lakh is 100 basis points lower than the card rate, or 8.75 per cent, since the card rate is 150 basis points plus the base rate. The bank’s base rate is 8.25 per cent, and the home loan rates will change whenever this is revised. In the second and third year, the effective interest rate is 9.5 per cent or 25 bps discount over the card rate. For the fourth year onwards, the discount is withdrawn.

The teaser rate scheme, launched by SBI in February 2009, was extended several times as it has helped the bank to increase its market share. In December last year, the scheme was tweaked with a fixed discount offered instead of a fixed rate. SBI had decided to offer the revised scheme till March 31. It had a home loan portfolio of nearly Rs 83,000 crore, as on December 31, which had registered a growth of 22.5 per cent over a year. The average home loan size is Rs 12 lakh.

“The scheme will be offered till the monetary policy review of RBI or till the bank reviews its annual accounts, whichever is earlier,” said a bank official. The RBI review is scheduled on May 3, while SBI’s review is likely only in the second week of May.

The Reserve Bank of India (RBI), however, is not comfortable with banks offering such a product. It had increased the standard provisioning requirement for such schemes by five times to two per cent. SBI had requested RBI to waive the additional requirement, but may have to make Rs 300 crore extra provisioning if RBI insists, SBI Chairman O P Bhatt had said yesterday.