Govt warned,yet SBI extends teaser rates

After HDFC and ICICI bank,more banks have started extending the teaser home loan rates with competition hotting up to get more customers,ignoring the governments warnings....

After HDFC and ICICI bank,more banks have started extending the teaser home loan rates with competition hotting up to get more customers,ignoring the governments warnings.

Less than a week after the government said such schemes are a matter of regulatory concern and may impact financial stability of lenders,State Bank of India,Indias largest lender and controlled by the government,has extended its special concessional home loan rate scheme by two months to June 30. The bank decided to extend the scheme,which was to expire on April 30,since it is very popular with customers and because the bank8217;s liquidity is good.

This scheme is very popular with customers. As far as liquidity is good,we can continue with this scheme, a bank official said. While the rates for the first three years have been retained,the rate for fourth year onwards has been slightly reduced. For the first year,home loan would carry 8 per cent interest rate and for the second and third years it would attract 9 per cent. From the fourth year onwards,home loans up to Rs 50 lakh will be charged at 9.25 per cent while higher loans will carry 9.75 per cent interest rate.

Currently,the scheme carries 10 per cent interest rate from the fourth year onwards. SBIs teaser rates scheme was to originally expire on March 31 this year,but was later extended by a month to April 30. Teaser rate scheme provides concessional home loans to borrowers in the initial years,after which interest rates increases to align with prevailing market rates.

Earlier this week,the government had warned against teaser home loan rates being introduced by banks to entice more borrowers. Borrowers with low financial means may get attracted to take such loans on finding the initial low interest rates to be within their financial means,but may land themselves into a financial distress should interest rates start rising, Union minister of state for finance Namo Narain Meena told the Lok Sabha in a written reply.

Even the Reserve Bank of India had expressed its discomfort over the teaser rates which are offered only to new customers while old customers still pay 10.50-11 per cent interest on their loans.