April 20: After facing months of disapproval from the RBI, the country’s top lender, State Bank of India has finally discontinued its popular ‘teaser rate’ home loan scheme. Under this scheme, borrowers paid a lower interest rate initially which went up over time to market rates. Instead however, SBI has now introduced new home loan slabs which are perhaps the best in the market for any potential borrower. From May 1, SBI will now give home loans of up to `30 lakh at 1 per cent above base rate, the lowest rate at which the bank can make a loan, said Mr Pratip Chaudhuri, chairman, SBI. For loans ranging from Rs 30-75 lakh and above Rs 75 lakh, the lending rate will be 1.25 per cent and 1.75 per cent above the base rate, Mr Chaudhuri added.
SBI currently has a base rate of 8.5 per cent — the lowest in the industry. This means SBI’s loans are likely to be cheaper than comparable products of other lenders. The one risk here is that SBI could revise its base rate upwards. However, given the way interest rates have moved up in the past few months, economists feel that we are close to the peak of the interest rate cycle, if not actually there. This means that interest rates are more likely to go down over the future than up. “If the customer can find a better deal elsewhere, we don’t deserve his business,” Mr Chaudhuri quipped later, in a Q&A session with the media.
SBI’s new scheme could pose a problem for some of the other lenders who will be unable to match these rates. Probably no other lender gives retail customers such a favourable rate, says a banking sector analyst. Most existing home loan customers with other large lenders are currently paying effective rates of over 10 per cent. For other public sector banks, matching these rates may not be possible as their base rate — the lowest at which they can lend — is 9.5 per cent.
The earlier scheme of teaser rate had been a big hit with customers as they had to pay a lesser amount in the initial period of the loan. All the major lenders — ICICI Bank, HDFC and SBI were offering teaser loans earlier. The rationale was that over time, incomes also tend to increase and the rising burden wouldn’t be so onerous.