SBI withdraws teaser home loan scheme

Amid concerns expressed by the Reserve Bank of India, the country's largest lender State Bank of India on Wednesday announced withdrawal of special home loan schemes, or teaser rates, with effect from May 1.

SBI Easy Home Loan and SBI Advantage Home Loan (teaser rate products) will be replaced by floating interest rate schemes on par with other commercial banks.

Under the teaser home loan scheme, SBI was offering lower rate of interest of 8-8.5 per cent for the first three years.

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It invited severe criticism from RBI, which had said the scheme could impact the asset quality of SBI's home loan portfolio.

The withdrawal of teaser rates comes within a month of the new chairman Pratip Chaudhuri taking charge at SBI.

The home loan from SBI will now attract an interest rate of 9.5 per cent to 10.25 per cent depending upon the loan amount, SBI said.

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SBI has also launched the SBI Advantage Car loan Scheme, under which credit would be provided at 10.75 per cent for a maximum period of 7 years.

The withdrawal of teaser rates follows the bank hiking its lending rate by 25 basis points making loans across segments costlier.

Under the new floating rate scheme, loans up to Rs 30 lakh (Rs 3 million) would attract an interest rate of 9.50 per cent, those between Rs 31-75 lakh (Rs 3.1 million to Rs 7.5 million), 9.75 per cent and credit above Rs 75 lakh (Rs 7.5 million) would attract 10.25 per cent rate.

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SBI had launched teaser home loan schemes in August 2009, in the aftermath of the global downturn.

It said in the last few quarters the status of the residential real estate market has experienced upward pressure on prices across cities.

"Taking cognizance of the above and also taking note of regulatory concerns, the bank has decided to withdraw SBI Easy Home Loan and SBI Advantage Home Loan with effect from May 1, 2011," SBI said in a statement.

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Following concerns expressed by RBI, leading lenders, including ICICI Bank and HDFC, discontinued their teaser rate schemes.

Teaser loans have been a hit with customers but RBI had raised concerns that it might become a burden for them when rates begin to rise after the initial 2-3 years and may increase the default rate.