Teaser home loan, still a cost-effective product: SBI

Teaser home loan, still a cost-effective product: SBI

The country's largest bank, State Bank of India is still positive about the teaser' home loan products despite the Reserve Bank of India's norms on additional provisioning for such products.

"In terms of affordability, in terms of riskiness, this is the best product we have in the market," said Mr O. P. Bhatt, Chairman, State Bank of India, on the sidelines of an International Banking Conference organised by the Indian Merchant Chambers here on Thursday.

State Bank of India, in February 2009, had launched special SBI home loan scheme where in the bank charged a fixed rate of 8.0 per cent for the first year. The scheme will end by December when the bank will take a call on whether to continue it further, said Mr Bhatt.

He added that the home loan scheme was a function of the huge liquidity the bank had in the previous financial year.

Despite the tightening of the of the liquidity situation, Mr Bhatt added, "The situation has changed but it has not changed so as to warrant the special home loan product to become an unprofitable or a risky product. It is very much a profitable product for State Bank."

The RBI had asked banks to increase the standard asset provisioning for all teaser rate home loans to 2 per cent from 0.4 per cent previously. Teaser loans are loans where interest rates are comparatively lower in the first few years, after which they are reset at higher rates.

Mr Bhatt had earlier pointed out that the special home loan' scheme was a good customer acquisition strategy for the bank. For SBI, all the incremental credit demand for housing loans was coming under the scheme, he said. The RBI norms are expected to push up the bank's cost of funds by 5-10 basis points.

Earlier this week, Housing Development Finance Corporation (HDFC) said that it will take a call on the continuation of its teaser loan scheme depending on whether other banks decide to continue with their fixed rate schemes. HDFC's fixed rate scheme Dual Advantage 5' is open till November 30.

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