The initial comfort which the regulator drew from base rate mechanism that will be in place soon, to put an end to the teaser rate schemes is fading fast. This is because the Reserve Bank of India (RBI) apprehends that with a housing finance company (HFC) re-launching teaser rates, other may follow suit to stay competitive.
According to top RBI sources, the regulator may take up the matter with the National Housing Bank (NHB) and ask housing finance companies to stay away from such schemes.
In addition, it may tighten screws on these schemes that offer a fixed rate of interest in the initial years and then move to a floating rate mechanism. Sources in the regulatory body said that RBI could ask banks not to offer benefits of lower interests to new customers only.
While all lenders, barring State Bank of India (SBI), have terminated their fixed-cum-floating rate mortgage schemes, Housing Development and Finance Company (HDFC) last week relaunched a scheme. In the past, RBI has expressed its discomfort against such schemes and persuaded banks to stay away.
| TIGHTENING GRIP # Reserve Bank of India (RBI) apprehends that with a housing finance company (HFC) re-launching teaser rates, other may follow suit to stay competitive # The regulator may take up the matter with the National Housing Bank (NHB) and ask housing finance companies to stay away from such schemes # In addition, it may tighten screws on these schemes that offer a fixed rate of interest in the initial years and then move to a floating rate mechanism # In order to make customers more aware of how their equated monthly installment changes when the teaser rate becomes market related, RBI has put a spreadsheet on the Frequently Asked Questions section on its website |
“It is a marketing gimmick. If it is going to start another round of teaser rate and disturb the apple cart, we will definitely talk to the NHB and also HDFC,” a senior RBI official said.
RBI has said that the scheme only benefits new customers. Besides, the borrowers do not know how much they are required to pay. SBI executives have, however, defended the scheme saying that details are being explained to the borrowers and the lending standards have not been lowered.
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In addition, the bank has maintained that it launched the scheme to deal with the excess liquidity that it has and in the process prop up demand for housing.
HDFC, which had initially attacked the scheme, not only followed suit but also extended the special offer before relaunching it.
In order to make customers more aware of how their equated monthly installment changes when the teaser rate becomes market related, RBI has put a spreadsheet on the Frequently Asked Questions (FAQs) section on its website (FAQ section) to help borrowers calculate the equated monthly installment (EMI) in response to the change in interest rates.
On their part, banks executives are demanding a level playing field with non-banking housing finance companies as base rate mechanism is not applicable to the finance companies.
“If a housing finance company, which is categorised as an NBFC, charges 8.25 per cent and a bank’s base rate is 9 per cent, then banks will be out of competition,” said a banker.