Mumbai: Buckling under pressure from India’s banking regulator, the nation’s largest lender State Bank of India (SBI) on Wednesday withdrew its so-called teaser home loans.
The bank’s chairman Pratip Chaudhuri announced new home loan rates, effective 2 May, linked to its base rate. Home loans up to Rs30 lakh will be priced at base rate plus 1%; loans between Rs30 lakh and Rs75 lakh at base rate plus 1.25%; and above Rs75 lakh at base rate plus 1.75%.
SBI’s base rate, or minimum lending rate, is now 8.5%. Its new home loan rates for the three slabs now stand at 9.5%, 9.75% and 10.25%.
The so-called teaser loans, or “special home loans”, are priced at a lower rate for the first three years after which the rates become market related.
The Reserve Bank of India (RBI) has been insisting on a higher provisioning for such loans—2% against 0.4% for normal home loans—as it feels that such loans are riskier and come with higher probability of default. But former SBI chairman O.P. Bhatt had contested the regulator’s view and declined to set aside money for higher provisions. His argument was that these loans do not carry any extra risk and the bank takes into account a consumer’s paying capacity before offering such loans.
Chaudhuri seems to have a different point view. “We decided to withdraw the scheme taking into account the regulatory concerns and the current market conditions. It does not subtract value to the customer and addresses the regulators,” he said.
“We were worried that customers will go to other banks, but if it happens, let it happen,” Chaudhuri added. He has also agreed to provide for the higher risk perceived by the regulator.
At a provision of 2% against 0.4%, the bank will be required to set aside Rs587 crore, Chaudhuri disclosed. The amount will be provided in the fourth quarter. To that extent, the bank’s profitability will be hit.
“We have been discussing teaser loan rates with RBI. In the overall interest of the economy and public, they have taken a decision and we have to comply with that,” Chaudhuri said.
“In a game of football, the players may have differences with the decision of the referee, but the referee’s decision is final,” he added.
Since the launch of the teaser loans scheme in 2009, SBI has disbursed about Rs37,000 crore to between 400,000 and 500,000 customers.
He claimed that the growth in the disbursal of such loans was not only because of the special rates, but also other factors such as the service provided by the bank to its customers.
Chaudhuri expects the growth of 20-22% in home loan portfolio that the bank achieved in the last one year to continue.
According to SBI officials, the bank’s market share is 18% of the total home loan market.
SBI has also waived the pre-payment penalty for its new customers on its various auto and home loans, and announced a special auto loan rate called SBI Advantage Car Loan, under which it will be offering auto loans of various amounts and maturities, up to seven years, at a floating rate presently pegged at 10.75%—2.25% above the base rate.
The processing fee for home loan rates now stands at 0.25% of the loan amount for loans up to Rs25 lakh and a flat Rs10,000 for loans between Rs25 lakh and Rs75 lakh. Beyond that, the processing fee is a flat Rs.20,000.