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Banks to review teaser home loan plans in March

BS Reporter  |  Mumbai 

The country’s top lenders today said they would review the future of fixed-cum-floating rate schemes in March.

O P BhattThe limited period offers, which have come to be known as teaser rate schemes, are due to end by March 31.

“We will review it (special home loan scheme) sometime in March and see what kind of (credit) offtake has taken place, what kind of liquidity we have, what is the view on lending to various sectors and where we think the cost of funds is heading,” State Bank of India Chairman O P Bhatt said at the Business Standard Banking Round Table. He added that the effort would be to keep interest rates down, but if it hurt the bank, then rates would have to go up.

ICICI Bank Managing Director & CEO Chanda Kochhar and Axis Bank Managing Director & CEO Shikha Sharma said the lenders would review the rates closer to the expiry date.

The Reserve Bank of India had earlier expressed concern on the teaser rate schemes and asked banks ensure proper due diligence while extending these loans. There is expectation in the market that the schemes will end, as the RBI had tightened liquidity in the system by increasing the cash reserve ratio, the proportion of deposits that banks set aside, by 75 basis points to 5.75 per cent.

SBI, the country’s largest lender, had pioneered the fixed-cum-floating rate scheme, with interest rate in the first year fixed at 8 per cent. In the second and the third year, the rate is fixed at 8.5 per cent and then moves to a floating rate from the fourth year.

who had criticised SBI’s scheme then came out with similar products.

Axis Bank’s Power Advantage Home Loan scheme and ICICI Bank’s special offer came with a fixed interest rate of 8.25 per cent for the first 24 months.

A senior SBI executive said liquidity would be the key determinant. And, if RBI raised policy rates, the bank would have little room to continue the scheme. Last week, Bhatt had said SBI had an excess liquidity of Rs 75,000 crore. With Reserve Bank of India (RBI) deciding to hike CRR by 75 basis points in two stages by February end, this will impound Rs 36,000 crore from the system.

Punjab National Bank, which is nearly half the size of SBI, had said the CRR hike would soak up the bank’s liquidity by around Rs 1,800 crore. HDFC Bank had said it would be impacted to the extent of Rs 1,500 crore.

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First Published: Thu, February 04 2010. 00:43 IST
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