“This scheme is very popular with our customers. As far as liquidity is good, we can continue with this scheme,” an SBI official told PTI while announcing that the scheme, which was to expire on Friday, has been extended. ICICI spokesperson, however, said, “we have no plan to extend the teaser rates.” HDFC’s teaser rate scheme was also to end on Friday, but the lender did not make any announcement whether it is extending the scheme or not.
The contrary stand by two leading lenders comes at a time when the government has said these schemes are a matter of regulatory concern and may impact financial stability of the lenders.
Concessional loans
Teaser rate scheme provides concessional home loans to borrowers in the initial years, after which interest rates increases to align with prevailing market rates. Experts believe that there may be default on these home loans, if borrowers are not aware about the higher interest rate structure in the subsequent years.
While SBI has retained the rates for first three years, the rate for fourth year onwards has been slightly reduced. For first year, the loan would carry 8 per cent interest rate and for second and third years it would attract 9 per cent rate. From fourth year onwards, loans up to Rs 50 lakh will be charged 9.25 per cent interest rate while higher loans will carry 9.75 per cent rate. Currently, the scheme carries 10 per cent interest rate from the fourth year onwards.
SBI’s teaser rates scheme was to originally expire on March 31, but was later extended by a month to April 30. Recently, Housing Development Finance Corporation re-launched its special home loan product till April 30. It had earlier offered a low-cost home loan product for a limited period up to February 27.
Besides, ICICI Bank had extended the teaser rate for home loans till April-end. ICICI’s teaser plan, which offered home loans at 8.25 per cent for two years and existing floating rate thereafter, was discontinued from March 1. Earlier this month, Minister of State for Finance Namo Narain Meena told the Lok Sabha in a written reply that “the borrowers with low financial means may get attracted to take such loans on finding the initial low interest rates to be within their financial means, but may land themselves into a financial distress should interest rates start rising.”
The resulting delinquency of such loans would have adverse impact on the financial stability of the lending banks, he had said. The central bank also has been raising concern over various aspects of teaser rates.
