State Bank of India decided to Discontinue with Debated Teaser Home Loan Scheme
State Bank of India on 20 April 2011 decided to follow Reserve Bank of India’s norms on its much debated ‘teaser' home loan scheme. SBI decided to discontinue the scheme from 30 April 2011.
India's largest bank, SBI will replace the teaser' home loan scheme with a new floating rate home loan product with effect from 1 May 2011.
SBI finally decided to do away with the product as it would have to make a two per cent provisioning for standard assets (against 0.4 per cent for other standard assets) entailing an outgo of Rs 587 crore on existing teaser loans in the March-end quarter. Had the SBI given in to the provisioning, it’s profitability for the reporting quarter would have been impacted to that extent.
Teaser loans are advances offered at a comparatively lower rate of interest for the first few years, after which rates are re-set at higher rates. SBI introduced the teaser home loan product two years ago.
Under the new floating rate structure, customers can get home loans at a spread above the base rate which currently stands at 8.5 per cent. Also, the SBI has waived penalty on pre-payment and introduced a graded processing fee, which will be charged only if the loan application is passed.
Loans up to Rs 30 lakh will be available at 9.50 per cent (that is, one percentage point above the base rate);above Rs 30 lakh and up to Rs 75 lakh at 9.75 per cent (125 basis points above the base rate); and above Rs 75 lakh at 10.25 per cent (175 basis points above the base rate).
According to the current teaser loan structure, a home loan borrower pays nine per cent interest in the first year, 9.75 per cent in the second and third years and 10 per cent from the fourth year.
