Says central bank considering request to exempt SBI from higher provisioning
State Bank of India, the largest lender in the country, today said its special home loan schemes did not fall under the “definition” of teaser loans provided by the Reserve Bank of India (RBI), and hence it had not made any higher provisions for these loans.
“Our special home loan schemes are not teaser loans. If you go about the definition of teaser loans, as provided by RBI in the recent circular, our loan does not fall in this category. Hence, we have not made any extra provisioning on this account,” OP Bhatt, Chairman, SBI, told reporters while announcing the bank's third-quarter results.
RBI has been expressing concern over teaser loans since late last year. “It has been observed that many banks at the time of the initial loan appraisal do not take into account the repaying capacity of the borrower at normal lending rates,” RBI said in its November policy.
Earlier this month, the central bank increased the provisioning for the dual rate schemes from 0.4 per cent to two per cent of the total outstanding.
Subsequently, SBI tweaked its special home loan schemes, which would charge floating interest rate in the initial years as against fixed interest. However, it offered a special concession for loans sanctioned up to March 31, where it would charge 8.5 per cent in the first year and 9.25 per cent for the second and third year on a floating rate basis.
Compared to this, in the earlier scheme, SBI offered a fixed rate of 8 per cent in the first year and 9 per cent in the second and third years. Thereafter, interest rates were reset at the floating rate charged by the bank for the prevailing year.
According to Bhatt, RBI has defined teaser loans on three aspects: the differential interest rate, transparency and risk to the borrowers; and SBI addresses two of these aspects quite adequately.
“There is total transparency regarding the interest rate and other terms and conditions from day one. Secondly, our eligibility norms are based on the highest interest rate chargeable at the time of application rather than the discounted rate, so the effect of the increase in the EMIs on the customer is also taken care of. So in both the aspects it does not fall into the category of teaser loans,” Bhatt explained.
Subsequently, the bank had written to the RBI to exempt the higher provisioning, and the regulator would accordingly take a fresh look at it, he said.
“For the time being, RBI has exempted us from this higher provisioning and hence we have not made any extra provisioning for home loans in the third quarter,” Bhatt added.
The total home loan portfolio of SBI as on December 31, 2010, stood at Rs 82,000 crore, of which the special home loan scheme, which commenced from October 2008, accounted for around Rs 32,000 crore.
"The average ticket size of our home loan book is Rs 12 lakh and 90 per cent of the loans are under Rs 20 lakh," Bhatt said.
