SBI chief wants teaser loans back, ICICI Bank favours uniform rates

PHASE 2? Lenders withdrew such loans in 2011 after the RBI flagged concerns that they may hit asset quality

The country’s two top lenders —State Bank of India and ICICI Bank — are not on the same page when it comes to reintroducing the controversial ‘teaser loans’ that were shelved four years ago after the regulator flagged asset quality issues.Teaser home loans are offered at a fixed low rate of interest in the initial years and are then adjusted to a higher floating rate for the remaining tenure.

MUMBAI: The country’s two top lenders —State Bank of India and ICICI Bank — are not on the same page when it comes to reintroducing the controversial ‘teaser loans’ that were shelved four years ago after the regulator flagged asset quality issues.

Teaser home loans are offered at a fixed low rate of interest in the initial years and are then adjusted to a higher floating rate for the remaining tenure.

Pitching for the reintroduction, SBI chairman Arundhati Bhattacharya said: “I still believe there is a place for teaser loans mainly because when people take loans in initial days, they need some leeway. But as time passes, a higher EMI does not pinch much as their salaries go up that can service a higher EMI.”

However, the country’s largest private lender, ICICI Bank, is not open to the idea. “We’ve always preferred standard rates over enticing options as in the former, the customer is aware from day one what the rate is,” ICICI Bank executive director Rajiv Sabharwal said. “We believe that offering standard rates where rates remain uniform throughout the life of a loan is a better proposition.”

Both were speaking to reporters on the sidelines of an industry event in the city over the weekend.

SBI and other lenders had withdrawn such loans in 2011 after the then Reserve Bank of India governor D Subbarao expressed concern that such loans may pose a possible risk to asset quality.

Not exactly happy with the terminology, Bhattacharya said teaser loans are actually differentiated EMIs, or step-up loans, where the lender charges EMIs at lower rates initially and then restores it to higher rates.

The objective of the scheme started by her predecessor OP Bhatt in late 2011, she said, was to help fresh home loan borrowers get some breathing space in the initial years as they would have exhausted their resources while buying the new property.

This is the second time that Bhattacharya has batted for reintroduction of teaser loans.

“I am told that real estate stock is at a two-year high and I was thinking if it is possible to reintroduce teaser loans once again, given the fact that this is one of the portfolios where NPAs are the lowest,” Bhattacharya told RBI governor Raghuram Rajan during an event in August.

Though Rajan acknowledged the demand, he added that there was need to push up demand through a price cut by builders and not cheaper loans.

“I think we need the market to be clear. With growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier, but we also don’t want to create a situation where prices stay high at the level, which means demand can’t pick up. It would be a great help if realty developers sitting on unsold stock bring down prices,” Rajan had said.

Initially when people take loans, they need some leeway. As time passes, a higher EMI does not pinch much, as salaries go up ARUNDHATI BHATTACHARYA, chairman, SBI The customer is aware from Day 1 what the rate is... Offering standard and uniform rates throughout the life of a loan is a better proposition RAJIV SABHARWAL, executive director, ICICI Bank