Once bitten, SBI says enough with teaser loans

Country's largest lender SBI on Wednesday ruled out re-launching teaser rate loans, days after its private sector rivals HDFC and ICICI introduced special home loan schemes with interest rates fixed for initial few years.

"We have no plans as of now to launch any special home loans," State Bank of India (SBI) Chairman Pratip Chaudhuri said.

Reminiscing of the bank's earlier brush with the Reserve Bank in this regard, he said, "We have been through the teaser loan definition. We respect the regulator's stance."

The country's largest private lender ICICI Bank had recently launched a dual rate home loan product which offers fixed interest rate to start with after which the loan turns floating. The announcement was followed by the launch of a similar product by mortgage major HDFC too this Monday.

Industry observers had pointed out that both these products have some characteristics of teaser rate loans, pioneered by SBI in 2009.

Talking of the bank's earlier experience, Chaudhuri said, "We had tried to argue (with the RBI), to reason, but the regulator has a position and already we have provided 2 per cent on our teaser loan portfolio that is Rs 500 crore. I think it was a stiff enough penalty and we would not like to live through it again."

Fearing an asset bubble build-up and to contain the impact, the Reserve Bank had increased the provisioning for teaser rate loans by a steep five-fold to 2 per cent recently.

SBI, under the chairmanship of Chaudhuri's predecessor O P Bhatt, was the first lender to offer teaser products in the days of ample liquidity in November 2009. Courtesy the product, it gained a dominant position in the housing loan segment by overtaking HDFC.

Soon, other lenders also followed suit but all the banks, including SBI, discontinued the product after the RBI tightened the norms.

Reacting to the banking ombudsman's suggestion to not charge pre-payment penalties from borrowers on floating interest rate, Chaudhuri said as such SBI does not charge any penalties.

"If our customers have the avenue of getting a loan cheaper, I have no particular business to hold on to him by putting negative covenants," Chaudhuri said.

The bank, which plans to come out with a rights issue this fiscal, may raise at least USD 1 billion in overseas borrowings through a medium term notes (MTN) programme after November to augment its tier-II capital, he said.

"We feel this is not the right time to visit the markets...may be after November. Generally, whenever we do such issues, we raise at least USD 1 billion," he said.

On the much-delayed rights issue, Chaudhuri said, "I think the government is committed to a well capitalised SBI and maintaining its public character."