SBI withdraws teaser home loan plan with effect from May 1

Published on Wed, Apr 20, 2011 at 19:12 |  Source : CNBC-TV18

Updated at Wed, Apr 20, 2011 at 21:25  

India's largest lender State Bank of India (SBI) on Wednesday said it will withdraw its teaser home loan rates effective from May 1.  The change in the home loan structure was done keeping the Reserve Bank of India’s norms in mind, said SBI's new chief Pratip Chaudhuri.

There will also be no pre-payment penalty on car loans, Chaudhuri informed.

Earlier, the PSU major had increased its benchmark lending rates by 25 basis points. The move made all loans, including home loans and most loans to corporates, more expensive.

With effect from April 25, the country's largest bank will increase both its benchmark prime lending rate and its base rate.

The BPLR, which is the benchmark for all its old floating rate loans, has been increased from 13% to 13.25%.

The base rate, which is the benchmark for loans in recent months and for future loans, has been increased from 8.25% to 8.5%. This means that home loans will go up for both existing and new home loan customers.

Chaudhuri said the base rate was raised in order to catch up with industry. “SBI is behind the curve in revising base rate,” he said.

SBI has also removed the “fixed element” from special home loans. “We will shift special home loans from fixed to floating,” Chaudhuri said. The bank’s current provisioning on special loans is at Rs 587 crore.

RBI vs SBI

The move is also expected to end the period of rift between SBI and RBI.

Teaser loans are considered risky due to their high default rates. They are usually offered to low-income home buyers. Unfortunately, when these borrowers try to refinance the loan before the rate increases, most will not qualify for standard mortgages. This leaves borrowers with increased monthly payments, which many cannot afford.

In an attempt to discourage teaser loans, RBI had asked banks to make provision of 2% of outstanding portfolio for such loans with immediate effect.

"The current provisioning requirement of 2% (on teaser loans) is a bit difficult for the bank when compared with the earlier 0.40%," Chaudhuri had said at his first media interaction after taking over as Chairman.

As per the new scheme:

Home Loans up to Rs 30 lakh to have interest of base rate + 1%

Home loans between Rs 30-75 lakh to have interest of base rate +1.5%

Home loans above Rs 75 lakh to have interest of base rate + 1.75%

Courtesy:moneycontrol.com