ICICI Bank resurrects dual-rate housing loan

ICICI Bank, India's largest private sector bank, on Thursday said it would launch two new home loan products with interest rates fixed for one and two years - a reminder of the earlier teaser loan schemes.

Such fixed-cum-floating housing loan schemes had disappeared from the market after the Reserve Bank of India expressed concerns that these products may affect banks' asset quality.

Under the new loan scheme of ICICI Bank, a customer can avail a housing loan at a fixed rate of interest for one or two years, after which the interest rate would become floating.

In the one-year fixed rate home loan scheme, loans up to Rs 25 lakh (Rs 2.5 million) will be given at 10.50 per cent, loans of Rs 25-75 lakh (Rs 2.7 - 7.5 million) at 11 per cent and those above Rs 75 lakh at 11.50 per cent.

The floating rate from the second year will be linked to ICICI Bank Base Rate (I-Base) plus margin decided at the time of sanction of the loan.

Under the two-year fixed rate housing loan scheme, loans up to Rs 25 lakh will be given at 10.75 per cent, loans of Rs 25-75 lakh at 11.25 per cent and those above Rs 75 lakh at 11.75 per cent.

The floating rate from the third year will be linked to ICICI Bank Base Rate (I-Base) plus margin decided at the time of sanction of the loan.

So, if the bank's base rate rises (currently, it is 10 per cent), the floating rate will also move up. If the minimum lending rate is reduced, the floating rate will also be lower.

"It cannot be called a teaser rate product since the floating rate may not be higher than the fixed rate if the base rate falls. In SBI's case, the floating rate was already decided at a higher level than the fixed rate," a banker said.

"Fixed interest rates will shield customers from frequent changes in home loan interest rates and protect them from any rise in interest rates over the next year or two years, depending on the product availed by the customer.

These products are in addition to the already available floating rate products," the bank said in a statement. The RBI had termed dual home loan products "teaser rate" schemes as they appeared to tease borrowers, offering discounted rates in the initial period.

The central bank defined teaser rate home loan schemes as those "offered at a comparatively lower rate of interest in the first few years, after which rates are reset at higher rates".

Some experts, however, said the new housing loan product of ICICI Bank was different from the teaser schemes that flooded the market a couple of years earlier.

ICICI Bank has not defined the floating rate of interest it will charge. It said the floating rate would be linked to ICICI Bank Base Rate (I-Base) plus margin decided at the time of sanction of the loan.

To discourage banks from offering teaser rate schemes, the RBI had increased the standard asset provisioning for all such loans to 2 per cent from 0.4 per cent.

In ICICI Bank's case, the 2 per cent provisioning may not be applicable as these loans could not be strictly classified as teaser loans, said a banker.