SBI may continue teaser loans

Likely extension beyond March, with rise in interest rates.

The country’s largest lender, the State Bank of India (SBI), is likely to continue with its special home loans beyond March.

Under the special scheme, for home loans of less than Rs 30 lakhs, SBI charges 8.75 per cent for the first year, 9.5 per cent for second and the third year and 150 basis points above the base rate from fourth year. SBI offers fixed discounts on interest rates for the initial years.

Sources said the lender may tweak these rates to suit the rising interest rate scenario but may not withdraw the scheme. “We are yet to take a final call but it is expected to continue,” said a senior SBI official. The scheme was scheduled to end on March 31.

SBI had launched the special home loan scheme with interest rates as low as eight per cent but this was later increased to 8.5 per cent and was linked to the bank’s base rate. The Economic Survey 2010-11 said these loans helped financial inclusion as most were first time borrowers.

The Reserve Bank of India (RBI) had expressed concern on the nature of such loans, saying some borrowers may find it difficult to service the loans once the normal interest rate, which is higher than the rate applicable in the initial years, becomes effective.

“It has been observed that many banks at the time of initial loan appraisal do not take into account the repaying capacity of the borrower at normal lending rates,” said RBI in its second quarter review of monetary policy 2010-11. RBI had mandated banks to increase the standard asset provisioning by five times to two per cent for all teaser loans.

SBI Chairman O P Bhatt felt their home loans did not come under the teaser category and, hence, there was no need to increase provisioning on these loans.