Teaser rates:RBI feels loan?defaults?may?rise
The Reserve Bank of India (RBI) has expressed concern over banks offering teaser home loans to get the better of each other. The central bank is worried that borrowers may not be able to service the loans when the rates are hiked to market levels after the first year, which may lead to an increase in loan defaults.
Usha Thorat, deputy governor, RBI, said recently: “Teaser rates do cause a concern. Banks should ensure that the income of borrowers is adequate to service the loan when recovery picks up and interest rates return to normal levels.”
State Bank of India (SBI) was the first to come up with a teaser loan on 8% last year. It offered 8% for the first year, after which the applicable rate of interest came into force for the remaining tenure of the loan. If you are one of those who took the teaser home loan early last year, your honeymoon period of 8% fixed interest rate is about to get over and you will soon cross over to SBI’s present applicable floating interest rate of 9%. Read that as an increase in the equated monthly instalments (EMIs) on your home loan.
For instance, if you took a teaser loan of Rs30 lakh for 15 years, EMI in the first year, at 8%, was Rs28,714. After one year, at the applicable rate of 9% (SBI’s rate), you will have to pay an EMI of Rs30,391, an increase of Rs1,677. If the applicable rate of interest firms up to 11%, your EMI will shoot up to Rs33,699, an increase of Rs4,985.
The central bank is expected to tighten rates this year, in an effort to curb inflation.
If you are already stretching your budget to service the first-year EMIs, it will be difficult to pay the higher EMIs as the interest rates move up.
Gaurav Mashruwala, a Mumbai-based financial planner, says: “A borrower already stretching to pay his EMIs has three options. One, he can re-negotiate with the lender. Two, liquidate some investments like fixed deposit. Three, switch the loan to another low-interest lender. But service charges, pre-payment penalties and whether there is a cheaper option available are issues that need to be looked into.”
Reliance lists Liquid Fund on BSE Platform
Reliance Capital Asset Management Ltd has listed its liquid funds, Reliance Liquid Fund and Reliance Liquidity Fund, on the Bombay Stock Exchange’s (BSE) mutual fund (MF) platform. This is the first time that open-ended liquid funds have been made available on any stock exchange. The fund house will soon list its liquid funds on the National Stock Exchange.
Liquid funds listed on BSE will work much the same way as other schemes listed on stock exchange platform do. The cut-off time is 3pm. Application submitted before the cut-off time will fetch you units as per the same day’s net asset value (NAV). Those submitted after 3pm will get unit as per the following day’s NAV. On the other hand, if you invest in a liquid fund directly with the fund house or through your regular MF distributor before noon, units are allotted as per the previous day’s NAV.
While MFs were made available on stock exchanges in December, liquid funds were not available initially because stock exchanges did not have the mechanism to ensure that units are allotted by the fund house only after it gets the money. This is mandatory for all investments of Rs1 crore and above in debt and equity funds, but across all liquid funds for all investment amounts.
Systematic transfer plans are still not available on the exchanges, though.
—Kayezad E. Adajania