India's largest lender State Bank of India (SBI) on Wednesday announced the withdrawal of its teaser loans from May 1, in response to concerns raised by the Reserve Bank of India, its chairman Pratip Chaudhuri said.
"Withdrawal of teaser loan will not affect our growth in home loan segment as pricing of our new schemes is quite competitive," said Chaudhuri.
The teaser loans are housing and auto loans that banks offer to borrowers at lower interest rates in the initial years to lure more customers.
The bank has also announced to do away with pre-payment penalty on auto and home loans.
In the new home loan schemes effective from May 1, the bank will charge customers 1% to 1.75% over its base rate (now at 8.50%) for various home loan amounts, whereas in teaser loans it was charging 8.75% for the first year, 9.5% for the second year and 10% from third year onwards.
Popularity of teaser loans can be judged from the fact that out of the current home loan portfolio of R86,000 crore of the bank, Rs 36,788 crore falls under teaser scheme.
"There will not be any significant impact on the bank's overall performance because home loan portfolio is a small portion of its total lending portfolio," said a banking analyst of a broking house.
SBI has total book size of around Rs 8,00,000 crore, while home loan book is around Rs 86,000 crore.
Investors welcomed the bank's move as its shares closed at Rs 2,860, up 2.3% on BSE on Thursday.
With this move, the bank will not have to park fund for provisions against such loans. The bank needs to keep Rs 587 crore as provisions for such loans.