State Bank of India has finally decided to toe the Reserve Bank of India line on its much debated ‘teaser' home loan scheme. SBI on Wednesday said it will discontinue the scheme from April 30.
After months of trying to convince the regulator about the ‘desirability' of the product, the brainchild of former Chairman, Mr O.P. Bhatt, India's largest bank said it will replace the scheme with a new floating rate home loan product with effect from May 1.
The prospect of having to make a two per cent provisioning for standard assets (against 0.4 per cent for other standard assets) entailing an outgo of Rs 587 crore on existing teaser loans in the March-end quarter clinched the decision to do way with the product.
Otherwise, the bank's profitability for the reporting quarter would have been impacted to that extent.
Teaser loans are advances offered at a comparatively lower rate of interest for the first few years, after which rates are re-set at higher rates. SBI introduced the teaser home loan product two years ago.
Under the new floating rate structure, customers can get home loans at a spread above the base rate, currently at 8.5 per cent. Besides, the bank has waived penalty on pre-payment and introduced a graded processing fee, which will be charged only if the loan application is passed.
Loans up to Rs 30 lakh will be available at 9.50 per cent (that is, one percentage point above the base rate); above Rs 30 lakh and up to Rs 75 lakh at 9.75 per cent (125 basis points above the base rate); and above Rs 75 lakh at 10.25 per cent (175 basis points above the base rate).
According to the current teaser loan structure, a home loan borrower pays nine per cent interest in the first year; 9.75 per cent in the second and third years; and 10 per cent from the fourth year.
“The regulator has the final word. We cannot be in a state of perpetual conflict. Our move is in the overall interest of the country, economy and the bank,” said Mr Pratip Chaudhuri, Chairman, SBI.
Auto loans
SBI has also revised interest rates on car loans. All loans of various amounts and different tenures with maximum of 7 years will be covered under this.
The rate of interest will be 10.75 per cent linked to the base rate, that is 225 basis points above the Base Rate. There will be no pre-payment penalty on these car loans to enable customers to go in for an upgrade.