RBI clamps down on teaser home loans; curbs excessive lending

In a move to curb excessive lending in the housing segment, the RBI said that the standard asset provisioning on the outstanding amount of the so-called teaser home loans has been increased from 0.40% to 2% with immediate effect.

The provisioning on these assets would revert to 0.40% after 1 year from the date on which the rates are reset at higher rates if the accounts remain “standard.”

It has been observed that some banks are following the practice of sanctioning housing loans at teaser rates i.e. at comparatively lower rates of interest in the first few years, after which rates are reset at higher rates.

This practice raises concern as some borrowers may find it difficult to service the loans once the normal interest rate, which is higher than the rate applicable in the initial years, becomes effective, the RBI said.

The Reserve Bank of India has also made margin money of at least 20% a mandatory process for any home loan to get sanctioned.

The margin money earlier stood somewhere between 10 to 15%. A slight concession has however been made for home loans upto Rs 20 lakhs where the loan can be availed by paying 10% of the total property value as margin money.

What are teaser loans?

Teaser loans are where there’s a fixed interest rate, approximately 8.5% for first two to three years thereby giving buyers a predetermined EMI at least for the first two to three years.

SBI extension

Meanwhile, the State Bank of India (SBI) is planning to extend its special home loan scheme, or the so-called ‘teaser’ loans that carry lower interest rates in the first couple of years, beyond December 31.

However, other banks such as ICICI and HDFC have withdrawn these schemes.

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