State Bank of India (SBI) on Monday introduced SBI FlexiPay Home Loan, whose repayment terms — lower EMIs in initial years, followed by higher EMIs — which the public sector lender refused to term as a ‘teaser loan’ which was introduced by the bank in February 2009. SBI said that it is not offering any discount in interest rates or offering more loan to value.
The bank said in a statement that the new offering will enable young working professionals to get higher loan amount compared to their loan eligibility under normal home loan schemes.
Rajnish Kumar, managing director, SBI, said in doing so the bank will not dilute the prescribed loan-to-value (LTV) ratio. “This product cannot be called teaser loan as we have taken adequate safeguards like making it available only for salaried professionals and not for all categories of customers.”
Kumar said that the main difference between FlexiPay home loan and teaser is that the interest rate in this scheme does not change as it did in a teaser loan.
“To lower the impact of such additional loan amount on monthly repayments in the form of EMIs, the customers availing home loan under the scheme will also be offered the option of paying only interest during the moratorium (pre-EMI) period of 3 to 5 years, and thereafter, pay moderate EMIs,” SBI said in a statement on Monday.
The EMIs will be stepped up during the subsequent years, the bank said, adding the move is a “recognition of the special needs of this growing aspirational segment, and to bridge the gap between affordability and demand for quality residential spaces.”
Last year, SBI chairman Arundhati Bhattacharya suggested to Reserve Bank of India Governor Raghuram Rajan to allow sub-base rate loans, which Rajan’s predecessor D Subbarao forced lenders to stop. Faced with high liquidity in early 2000s, SBI, under OP Bhatt, launched a loan scheme in November 2010 which came to be called ‘teaser loan’. It offered lower interest rates in the beginning but higher EMIs as the loan tenor matures.
Critics had warned this would create a credit crisis and if the overall economy falters borrowers would be overburdened.
Rivals, led by the then market leader HDFC, initially criticised SBI, but soon they, too, followed it up with similar schemes. The teaser loan scheme catapulted SBI to the No. 1 slot in the home loan space.
As criticism mounted, the RBI was forced to act and the scheme formally came to an end by April 2011 as the regulator feared such instruments would create asset mismatches for borrowers.
(With inputs from Financial Express & PTI)