SBI may tweak its 8% home loan scheme after Mar 31

Home-loan borrowers may yet have a reason to cheer! The country's largest lender, State Bank of India, has hinted that it may consider retaining its much-talked-about 8 per cent home loan scheme, albeit with slight modifications in the product.

"Well, I suppose there can be modifications (in the products), which will be in tune with our liquidity position...normally, we don't kill any product," a top SBI official said. However, the banking major is yet to formally decide on the extension of the offer whose tenure expires on March 31.

 Under the scheme, the lender offers home-loans at as cheap an interest rate as 8-8.5 per cent to new customers. SBI had initially launched these products in August 2009 for a limited period of three months but later extended it till March 31, 2010, following a huge customer-demand.

The scheme - My Home Campaign - offers an 8 per cent fixed interest rate for 5-years for loans up to Rs 5-lakh, with a maximum tenure of 10-years. For loans above Rs 5-lakh and up to Rs 50-lakh, it offers a fixed rate of 8 per cent during the first year and 8.5 per cent during second and third years. Reflecting its popularity in the market, SBI garnered a whopping Rs 250  billion (Rs 25,000 crore), disbursing an average of Rs 25 billion (Rs 2,500 crore) per month under the scheme. SBI has a home loan portfolio of around Rs 710 billion (Rs 71,000 crore).

SBI was the first to roll-out the dual rate special home-loan schemes or 'teaser' schemes in the market, at a time when credit demand in the domestic market was abysmally low after the global financial turmoil dented confidence and discouraged individuals and corporates to borrow. Most of SBI's competitors, including mortgage lender Housing Development Finance Corporation and ICICI Bank, had followed SBI by launching similar schemes, but later withdrew them, partly owing to the Reserve Bank's disapproval of such products and drying liquidity.

"I think it is the best home-loan product in the market. It is a very successful product. The way it helped other sectors to grow like steel and cement and contributed to the overall economic growth is tremendous," the official said.

However, the Reserve Bank was not happy with banks offering 'teaser' schemes as it was concerned about the ability of borrowers to service the interest rates when it got back to the normal level after the expiry of the offer period. RBI Deputy Governors, Usha Thorat and K C Chakrabarty, had openly expressed their concerns about the scheme.

"Teaser rates by banks is a cause of concern. Banks must ensure that borrowers can service higher rates when rates return to normal," Usha Thorat had said. Chakrabarty, on the other hand, asked banks to extend the benefit of cheaper home-loans to old customers as well. "We have no concern on teaser rates...you (banks) tease both new and old customers...don't leave out one segment,' Chakrabarty had said.