Following RBI measure some banks to go slow on teaser home loans

In its second quarter monetary policy review the Reserve Bank of India increased the provisioning for teaser loans to 2% from 0.4% in order to discourage the teaser home loans. The apex bank has capped all home loans at 80% of the value of a property.

Some banks have thus decided to go slow on teaser loans – home loans bearing an introductory lower interest rate for a stipulated period of time. However country’s largest lender State Bank of India (SBI) has stood its ground, several other banks.

Punjab National Bank, second largest public sector lender has decided not to push its special scheme which will be available until December 31 under which it is offering home loans at 8.5% for the first three years, an anonymous senior bank official informed. While floating home loan rates will normally range between 9 per cent and 10.25 per cent, depending on the amount borrowed and tenor.

He told, after RBI’s directive PNB will have to set aside an additional Rs 12 crore to meet provisioning. By the end of September quarter, bank housing loan portfolio stood at Rs 10,160 crore, of which teaser loans accounted for around Rs 700 crore.

Keki Mistry, vice-chairman & chief executive officer at HDFC said, "Teaser rate loans are a concern. Lenders use the initial lower interest rate while considering the eligibility of a borrower." Bank teaser loan scheme will expire at the end of the month, then it will decide whether to continue to offer the teaser rates.

However, since last December, the largest mortgage lender had extended the teaser loan scheme four times. In the first year bank has set rate at 8.5% and in the second year the rate is 9.25%, consequently in the following years a borrower has to pay floating interest rates.

Earlier RBI has expressed concern over teaser home loan scheme as the borrower risk increases if floating rates suddenly shoot up. However apex bank’s latest directive is applicable only to banks.

In fact SBI was the first one to launch teaser rate scheme two years ago, at that time very few people took loan and the cost of funds was low. Bank chairman OP Bhatt said the scheme helped revive demand. Bhatt said, without lowering a borrower’s eligibility criteria, teaser rate scheme helped in acquiring new customers and grow business. At present in SBI's loans segment home loans make up 13 per cent.

R R Nair, managing director & chief executive at LIC Housing Finance said, "We will wait for the initial response from (housing finance regulator) NHB. We have no plan to continue with our festive home loan offer, which gives loans at 9.25 per cent for the first five years." The scheme is available till November 15.

On the other hand Dena Bank Executive Director A K Dutt said his bank teaser scheme, did not receive a good response.

The bank has no plan to market its scheme aggressively.

The ratings, research and advisory firm Crisil said RBI’s latest measure will help to "ensure that the credit quality in this segment, which traditionally has low non-performing assets, remains robust".

It said, together with the 25-basis point increase in benchmark rates by RBI, the measures will increase home loan rates, which will result in "a moderation in demand for, and disbursement of, loans in the near future''.

Following RBI move, NHB is also planning to introduce provisioning norms on teaser loans and cap the loan-to-value (LTV) for housing finance companies to avoid arbitrage opportunities. R V Verma, chairman, NHB said, "So far, housing finance companies are not required to make any provision on standard teaser loans. We will come up with guidelines to ensure there is no arbitrage in the system."

However, housing finance companies have to keep a 100 per cent risk weight on LTV of above 75 per cent. Other than teaser loans, for other loans NHB is required to make a provision for 0.4% of the asset.