Bowing to pressure from the Reserve Bank of India (RBI), the country's largest lender, State Bank of India, on Wednesday announced that it is discontinuing its popular teaser home loan schemes, in which it was offering lower interest rates for the first two years.
"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," Pratip Chaudhuri, chairman, SBI said. "These products will be replaced by a new floating rate product at competitive interest rates."
Till date SBI has disbursed around Rs 36,700 crore under above two schemes to its around five lakh customers.
SBI pioneered the teaser rate concept in home loans in November 2009, offering new home loans at a fixed rate of interest lower than the market rate for the first two years of the loan's tenure. Subsequently, the loan would be reset to prevailing interest rates. Other banks such as ICICI Bank and HDFC rolled out similar schemes subsequently.
RBI was however not in favour of these schemes, and increased provisioning for such loans to 2% from the earlier 0.4% so as to discourage the banks. The central bank felt such schemes increased chances of loan defaults as many people who were lured by low rates in initial years, were not able to pay higher EMIs when higher rates kicked in.
Under the new home loan scheme, the bank will offer home loans up to Rs 30 lakh at 9.5% and 9.75% for loans between Rs 30 lakh to Rs 75 lakh.
SBI has an 18% share in the home loan market.