SBI extends teaser rates, but with changes

The country's largest lender State Bank of India (SBI) has extended its 8 per cent special home loan scheme, popularly known as teaser rates, for a month, but has made some changes to it that could make the overall loan costlier for borrowers.

As per the revised scheme, the loans would attract an interest rate of 8 per cent in the first year, and 9 per cent in the second and third years. As per the earlier scheme, the interest rate was fixed at 8 per cent in the first year and at 8.5 per cent in the subsequent two years.

While SBI officials could not be reached for comment on this issue, the industry sources said that SBI has reduced the spread on its teaser-rate home loans to 1.75 per cent, from 2.75 per cent previously thus effectively increasing the interest rate by 100 basis points. SBI's Prime Lending Rate currently stands at 11.75 per cent.

The revision in the terms would increase the effective average rate of interest to 9.5 per cent for the first three years, as against 8.75 per cent offered by rival home loan providers such as HDFC, said a banker. This would mean an additional interest outgo of close to Rs four lakh for a 20- year loan of Rs 30 lakh, said the banker, who did not wish to be named.

The revised scheme by SBI is valid till April 30, while all the other banks have discontinued their teaser rates owing to the rise in cost of funds. The SBI scheme was initially supposed to end by March 31.

Last month, leading private sector lenders like ICICI Bank and home loan lender HDFC discontinued their teaser rate schemes.

Several public sector banks including Punjab National Bank and Bank of India also decided to end the concessional or limited period loan regime in February.

These public sector banks, which have been offering teaser rates decided not to extend the validity of their schemes beyond March.