JOIN USThe RBI has raised the standard asset provisioning for teaser home loans –– housing loans with low interest rates for initial years –– to 2 per cent from the existing 0.4 per cent. The RBI said such loans have the risk of defaults because of the rise in interest rates in subsequent years.
As a result, banks will have to keep more money aside for offering teaser home loans to provide cushion for any default. This will also make home loans slightly more expensive. Interest rates for teaser home loans, introduced first by premier lender State Bank of India, start at 10 per cent. “This practice (teaser rate) raises concern as some borrowers may find it difficult to service the loans once the normal interest rate, which is higher than that applicable in the initial years, becomes effective,” said the RBI in the second quarter of its monetary policy for 2010-11.
Apparently, some banks may not have taken into consideration the repaying capacity of borrowers at normal lending rates at the time of initial loan appraisal, it said.