Bhatt defends teaser rates, says to take a call in end Dec

"This is the best home loan product ... in terms of affordability, in terms of friskiness, this is the best product we have in the market today," SBI Chairman Om Prakash Bhatt told reporters on the sidelines of a banking event organised by the Indian Merchants Chamber here.

Refusing to term this cheaper loan as teaser rate but special product, Bhatt further said that the product offers the best and the most affordable payment option to a borrower. He said the product would remain in force so long as it remain relevant and commercially viable to the market.

Under the teaser rates home loan scheme, banks lend at lower rates in the first few years which are subsequently raised.

As late as the last monetary policy review and the half-yearly macroeconomic report, the apex bank had raised concerns over the teaser rates. But even at the customary post-policy press meet, Bhatt had insisted that this special loan scheme was the need of the hour.

According to bankers, its a win-win product as in an easy liquidity scenario and serious credit crunch (when the product was first launched being goaded by the government in the wake of the global financial crisis) it fetches them higher interest rates while for the borrower, it gives cheaper money and helps in repayment as his incomes increase as the years go by

In the second quarterly review of the credit policy on November 2, RBI sounded concerns over building up of asset bubbles in the realty sector as a result of excessive borrowing and increased the mandatory provisioning for teaser loans by five times to 2 per cent.
Governor Duvvuri Subbarao had said on the policy day that "the real estate prices have reached or even surpassed pre- crisis levels."

Downplaying fears of asset bubbles, he said, "We thought that we must rein in loose practices in most of the housing sector."

Speaking to reporters today, Bhatt said that as per the practice, SBI will take a call on whether to continue with the teaser rates scheme or not by the end of the current quarter (end December).

Conceding that the liquidity situation is different now from 2009 when the product was first launched, Bhatt added, "the situation has changed (from when the teaser schemes were launched) but it has not changed so as to warrant that this is an unwanted, or an unprofitable or a risky product. It is a very much a desired product by the people and very risk free."

To a pointed question whether the bank will discontinue this loan scheme from the next quarter, he refused to give a straight answer and said, "it will remain in force so long as this remains relevant and commercially viable."All the major lenders, including SBI, mortgage lender HDFC and Indiabulls among others currently offer teaser home loan rates