SBI extends teaser home loans scheme

Mar 31, 2011 |

mumbai

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State Bank of India (SBI) on Thursday extended its controversial special interest rate home loans product (teaser loans) till further notice.

The product, which has faced flak from the sector regulator Reserve Bank, will continue to be sold till further notice from the lender, a highly placed bank official said.

The apex bank feels that teaser loans attract new customers with low interest rates, but existing customers who have to pay more are disadvantaged vis-a-vis the new ones.

The decision to continue with the product was taken by the SBI's asset-liability committee (ALCO), which met on Thursday.

Asked about the time for which the product will to be sold, the official said the annual monetary policy is scheduled for May 3 based on which there can be a review.

The government lender had extended the product, started in the days of high liquidity, for three months in December 2010 in spite of its peers bowing down to pressure and discontinuing the scheme.

Under its present form, for loans up to Rs30 lakh a borrower is charged an interest of base rate plus 0.50 per cent, which goes up till base rate plus 1.25 per cent till the end of the third year, after which it gets linked to the prevailing rates.

According to SBI, which has disbursed over Rs 90,000 crore under the scheme since November 2009 when it was first launched, this is a secure, transparent and profitable product, which is a win-win for both the bank and the customer.

The Reserve Bank, however, feels that existing (old) customers are disadvantaged as they have to pay more.

A few other banks and also leading mortgage lender HDFC, which had followed SBI with their own teaser loans, had discontinued their schemes a few months ago.

The outgoing SBI chairman O. P. Bhatt had defended the product on Wednesday, and said that the central bank ‘never understood’ the scheme.

According to him, this was the best product for the bank when it was sitting on a liquidity surplus of over Rs 1-lakh crore. It also ended up helping small-ticket home loan borrowers.

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