NHB warns against risks from teaser rates

NHB warns against risks from teaser rates
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First Published: Tue, May 04 2010. 07 18 PM IST
Updated: Tue, May 04 2010. 07 18 PM IST
New Delhi: National Housing Bank (NHB), which regulates housing finance firms, on Tuesday warned against risks from the teaser rates under which loans are given at concessional rates for a limited period.
The Finance Ministry, as also the banking sector regulator RBI, have already expressed their apprehensions over teaser rates, which a number of lenders, including SBI, HDFC and ICICI Bank, have been offering in a bid to expand market share.
“We have to be on top of the issue (teaser rate)... closely follow the issue to have better handling of the subject so that it should not start hurting the sector,” NHB executive director RV Verma told PTI.
“If teaser rate is provided in large scale, it may have adverse impact on the stability of system,” he said.
NHB is looking at it as systemic issue both from borrower’s and lender’s perspective, he said.
The regulator, he said, is assessing the matter right now.
Housing sector lender HDFC Ltd offered teaser rate (8.25% for the first year) to new borrowers till 30 April, while others like SBI continue to do so.
Last 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.
Even the banking sector regulator Reserve Bank of India (RBI) had raised concerns over teaser rate a couple of months ago.
RBI deputy governor Usha Thorat had said, “Teaser rates by banks is a cause of concern. Banks must ensure that borrowers can service higher rates when rates return to normal.”
SBI, according to an official, has extended its teaser rate scheme by two months till 30 June 2010.
While SBI has retained the rates for the first three years, the rate from fourth year onwards has been slightly reduced. For the first year, the loan would carry 8% interest rate and for the second and third years it would attract 9% rate.
From the fourth year onwards, loans up to Rs50 lakh will be charged 9.25% interest rate while higher loans will carry 9.75% rate. Currently, the scheme carries 10% interest rate from the fourth year onwards.
SBI’s teaser rates scheme was to originally expire on 31 March, but was later extended by a month to 30 April.
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First Published: Tue, May 04 2010. 07 18 PM IST