SBI pitches for teaser loans

Country's largest lender had withdrawn teaser loans after regulator had warned it may result in higher defaults

In order to boost credit offtake in the system, State Bank of India, country's largest lender, has recommended Reserve Bank of India to allow teaser loans back into the system.

“I am told real estate stocks are at a four-year high and I was thinking if it is possible for a little while... could something of this (teaser loan) kind be allowed, given the fact that this is one of the portfolios where NPAs are the lowest," SBI Chairman Arundhati Bhattacharya told RBI chief Raghuram Rajan at a banking seminar organised by the lender.

Teaser loans are the ones in which the rate of interest is lower than the the rate existing customer pays, in the initial years. After the first two-three years the borrower will have to pay a fixed percentage . Bhattacharya added that these loans had played a role in reviving demand after the 2008 crisis.

However, SBI had withdrawn teaser loans after the regulator had raised concerns over it saying that it may result in higher defaults after the rate goes up in the later years.

Raghuram Rajan, Governor, Reserve Bank of India did not immediately dismiss the suggestion but added that after from creating demand a larger push also needs to be made to bring down the real estate prices. “I think we need the market to clear (the excess stock) and with growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier."