SBI to decide on teaser rates

• Bank may raise the fixed rate or offer it only for the first year

• State Bank of India (SBI), the country’s largest and the first to launch teaser rates, will decide on the continuation of the scheme next week.

• According to sources, the bank’s senior management, which will meet early next week, is divided on the issue. In September, the bank had extended the scheme till December 31.

• SBI sources said the bank’s top management was still debating whether to withdraw the scheme completely or take a middle path. “Whether one wishes to call it teaser or by any other name (SBI calls it ‘special home loan scheme’), the fact is that we have created a strong brand name. Our home loan portfolio has grown quite rapidly after the launch of the scheme,” said a senior SBI executive, explaining the reluctance among some officials to withdraw the scheme.

• The bank may consider raising the fixed rate for the first three years by around 50 basis points. At present, the scheme offers eight per cent for the first year and nine per cent for second and third years. Another option can be to retain the fixed rate only for the first year.

• In the last couple of weeks, both Housing Development Finance Corporation (HDFC) and ICICI Bank have withdrawn such schemes.

• SBI is the largest player in the teaser loan segment, with an exposure of Rs 23,000 crore, almost one-third of its retail home loan portfolio of Rs 79,275 crore. Housing finance giant HDFC has an exposure of Rs 18,000 crore and LIC Housing Finance has lent Rs 7,000-8,000 crore through its fix-cum-floating schemes, according to banking sources.

• However, there are certain concerns as well. “While rising cost of funds is an issue, an increase in provisioning for these loans by the Reserve Bank of India (RBI) is another reason why we need to re-look at them,” said an SBI official.

• RBI raised the provisioning for teaser loans from 0.4 per cent to two per cent in the second quarter monetary policy review. It implies that banks need to set aside more money for these loans. For SBI, it means an additional provisioning of around Rs 450 crore.

• In a press conference after the monetary policy, RBI Deputy Governor Usha Thorat (who has retired since) criticised teaser rates and blamed these for the rise in housing prices. SBI Chairman O P Bhatt had defended the scheme by calling it a special home loan scheme and not a teaser rate scheme.

• There is also lack of clarity on provisioning. Banks have sought a clarification from RBI. For instance, they are not clear if they have to continue with provisioning even after the customer has moved from fixed to floating rates. Since the scheme was launched two years ago, many customers have already moved to the floating rate regime.