SBI rolls out teaser home loans after 8 years

A teaser loan is one where the lender offers a slightly lower rate in the initial years and then charges higher rates in later years.

In an effort to push home loans, State Bank of India on Monday floated a scheme offering fixed rate for the first two years at 8.5%  for women and 8.55% for men.

The country’s largest lender reduced the floating interest rate from 9.15%  to 8.6%  for home loans up to Rs 75 lakh and to 8.65%  for a higher amount.
 
A teaser loan is one where the lender offers a slightly lower rate in the initial years and then charges higher rates in later years.        
               
In SBI's new loan offer Hamara Ghar, once the fixed term of two years ends, the interest rate on the home loan will be linked to the prevailing one-year marginal cost of funds based lending rate (MCLR). The spread on the home loan at that time will remain the same as the current interest spread over the MCLR, which is 50 basis points.
 
Such teaser loan schemes have run into controversy inviting the regulator's ire in the past.
 
However, SBI chairman Arundhati Bhattacharya defended the scheme saying it was not a teaser loan, as the bank does not dilute the assessment norms, including repayment capacity while giving the loan. Its aim is to pass on the benefit of reduction in cost of funds and give a push to credit demand. The bank has factored in possible queries from the regulator while firming up the scheme, she said.
 
In 2008, SBI, under O P Bhatt as chairman, had floated a teaser home loan scheme, which was withdrawn in May 2011 after missives from the Reserve Bank of India. Under this scheme, SBI was offering lower interest rates of 8-8.5%  for the first three years. The scheme was launched to spur demand and avert any adverse effect of global financial crisis of 2008 on Indian economy and credit demand.

Photograph: Rupak De Choudhuri/Reuters.