SBI to take a call close to the scheme’s expiry on December 31.
HDFC and ICICI Bank, aggressive players in the home loan segment, have withdrawn their special home loan schemes which combined fixed and variable rates. Popularly, these schemes were termed as ‘teaser loan schemes,’ with lenders offering a lower fixed rate for the first few years and a floating rate thereafter.
An HDFC official said the dual rate home loan scheme was valid up to November 30 and had not been extended. A spokesperson with ICICI said the bank had decided to discontinue the scheme with immediate effect. Both did not give the reasons for the step.
Most banks plan to withdraw such schemes after the Reserve Bank of India (RBI) expressed concerns over ‘teaser’ rates, saying these would lead to a rise in defaults once borrowers shifted to higher floating rates.
A senior State Bank of India (SBI) official said the bank’s dual rate scheme was expected to run till the end of the month. The bank, he added, would take a call on its continuation close to the expiry date.
Mangalore-based Corporation Bank was the first to announce its decision to withdraw teaser rates.
The interest rates under the ICICI special home loan scheme were 8.50 per cent for the first year and 9.25 per cent for the second year. Thereafter, floating rates prevail.
Many banks had announced special schemes to attract retail customers. Under these, loans were given at lower rates and the processing fee was slashed. Defending the scheme, SBI Chairman O P Bhatt had earlier said the scheme was floated in January 2009 to give a push to the economy, which had slowed in the aftermath of the global financial crisis.
SBI did not relax the eligibility norms while extending such loans, he said, adding the borrowers were clearly communicated about the shift to the floating regime.
SBI was sitting on excess funds of over Rs 20,000 crore in January 2009. It saw this as an opportunity to deploy funds in an avenue that promised better returns than RBI. The bank is not incurring losses on dual rate loans.
Meanwhile, a senior official with the rating agency ICRA said these special schemes were always seen as floating rate ones. About 95-97 per cent home loans were floating rate loans. These schemes were not negative for the bottom lines of banks, it said.
