Rajan rebuffs SBI on 'teaser' loan

Says he prefers bringing down prices of unsold real estate inventory

State Bank of India chairman has pitched for a return of its so-called teaser loan to RBI governor Raghuram Rajan.

Speaking at the second SBI Banking and Economics Conclave, Arundhati Bhattacharya asked Rajan to consider bringing back loans below the base rate. “In 2008 when the economy started faltering, one the things that made the demand go up was the eight per cent housing loan that SBI gave.

“Of course at that point of time it was tagged as a teaser loan. We at SBI refute that because the due diligence that went for doing the loans was the same that was being done for the regular loan.

“The only thing was that the first two years you were allowed to pay at a lower rate. I was just thinking that is it possible for a little while something of this kind can be offered given that this is one of the portfolios where NPAs are the lowest?” Bhattacharya asked Rajan. She added for good measure, “I am told that real estate stock is at a two-year high and I was thinking if it is possible for a little while... could something of this (teaser loan) kind could be allowed given the fact that this is one of the portfolio where NPAs are the lowest.” Today in our portfolio, which is Rs 30 lakh and above, the NPAs are only 0.9 per cent. There has been no bubble built up and may be we could also ask the realty players to bring down their rates also, Bhattacharya noted.

In reply, Rajan said that the central bank is open to suggestions, but would like realtors to drop prices as well so that it becomes affordable. “I do believe that the real estate players who are sitting on unsold stocks should look at bringing down prices that would be a big help for the sector as once prices stabilise, people would be willing to buy,” Rajan said. With growing unsold stock, we need to figure out ways to do it and one of them could be by making loans easier, Rajan added.

In 2008, there was a dispute between the RBI and the bank over the product, and the then SBI Chairman O P Bhatt had gone to the extent of saying that the regulator did not understand the product. The loan product was controversial because lending is done below the base rate or the minimum rate of lending.