Teaser loans may get extension

The countrys largest mortgage lender,HDFC,is looking at extending their newly-introduced home loan scheme,which is offered at 8.25 in the first year and 9 in the second year before the loan moves into floating rate,beyond June 30. State Bank of India is also working out the cost of continuing the scheme in a similar format with slightly higher interest rates. Under the current scheme,SBI offers housing loans at 8 in the first year and 9 for another two years,after which the interest rates shift to floating regime.

With base rates of major lenders being set competitively,the banks should be in a position to continue the scheme without disruption.

Indian Banks Association IBA chairman MV Nair told FE,Banks are in the lending business and each one will be be looking at setting the base rate at competitive rates to advance their business. According to him,if the cost of deposits moves up,the base rate could be higher by some basis points and it need not be a concern. He declined to comment on continuation of teaser loans.

Housing loans is expected to remain the fastest-growing segment in retail loan portfolio that managed a mere 4 growth in last financial year. While housing loan segment grew by 8 in last fiscal,SBIs housing loan portfolio grew by 31 and HDFCs by 15. ICICI was the only major bank that saw a sizable contraction in home loan portfolio.

After RBI and finance ministry raised concerns about payment shocks for borrowers when the floating rate sets in after initial years,IBA had asked its member banks to carefully assess repayment capacity of the customer and convey to him the impact of the floating rates.

This continuation of teaser loans is a decision that we will take at an opportune time after examining the strength in credit off-take,liquidity scenario and trajectory for our cost of funds, said an SBI official. SBI introduced the teaser home loan system in January 2009 and expanded their home loan portfolio by 31.

The on-and-off tightness for liquidity in the system has not affected SBI,which has excess liquidity of more than Rs 26,000 crore even after lending a reported Rs 18,000 crore to telecos. While no final decision has been made on the base rate for SBI,it is expected to be close to 8,which will allow it to continue the teaser scheme at rates slightly higher than the present one.

Namrata Padhye of IDBI guilts,a primary dealer in government paper,said,While the overnight lending rates has moved up in recent weeks due to on-and-off liqudity tightness the three month to one year deposit rates that most banks are looking at to calculate,base rates remained more or less flat. Most of the primary dealers are expecting the liqudity scenario to remain comfortable with RBI injecting liqudity whenever needed.

According to the latest RBI data,credit offtake improved by 17.96 from a low base a year ago. While the disbursal of loans to telecos to buy 3G airwaves have pushed up the credit offtake in the last fortnight,bankers maintain that the growth across sectors is still tepid.

RBI governor Duvvuri Subbarao said last week that the central bank would take into account global developments while formulating monetary policy. It will review the policies on July 27. No immediate hike in lending rates is expected even if the central bank hikes key rates by 25 basis points.