SBI plays 'priority' card to avoid higher teaser loan provisioning

Says loans below Rs 20 lakh under priority sector lending, move to hurt customers.

State Bank of India (SBI) – the country’s largest lender and the pioneer of teaser loans in the country – has requested the Reserve Bank of India (RBI) to waive the higher provisioning requirement for these loans.

RBI had mandated higher provisioning for teaser loans — which offered lower rates in the initial years and higher in the subsequent ones. The standard asset provisioning requirement for such loans is two per cent, as against 0.4 per cent for any other loan.

As a result, SBI, which has a portfolio of nearly Rs 32,000 crore of teaser loans, would have to make an additional provisioning of nearly Rs 400 crore.

After the RBI move, SBI tweaked its home and auto loan schemes from January 1. Instead of a fixed interest rate, it started offering a fixed discount. However, it did away with the fixed rate. The interest now changes with the base rate.

SBI has requested the central bank against higher provisioning for such a scheme, especially for loans below Rs 20 lakh.

“Loans below Rs 20 lakh come under priority-sector lending. The government is encouraging affordable housing in urban areas, especially in small towns. If the provisioning for standard assets is more, it will put burden in the form of a higher interest rate”, a senior SBI official said.

At SBI, the average home loan size for the middle-class is under Rs 20 lakh. Thus, most loans would be eligible for priority status.

In December, RBI described teaser loans as credit sanctioned at comparatively lower rates of interest in the first few years, after which rates were reset at higher levels. It said the practice raised concerns about borrowers’ repaying capacity when normal interest rates (often higher than the rate applicable in the initial years) kicked in.

SBI Chairman O P Bhatt has defended the scheme saying the bank assesses the repayment capacity at higher rates before clearing proposals.

SBI’s home loans grew 27.17 per cent to Rs 79,275 crore in September, as against Rs 62,338 crore in the year-ago period. The bank has been applying a provisioning of 0.4 per cent for teaser loans too.