Banks are starting to fall in line with the Reserve Bank of India's position on so-called teaser home loans. Even as the country's largest lender State Bank of India stood its ground, several other banks have said they could go slow on teaser loans -- home loans bearing an introductory lower interest rate for a stipulated period of time.
Hoping to discourage them, RBI in its monetary policy review yesterday increased provisioning for teaser loans to 2 per cent from 0.4 per cent. The central bank also capped all home loans at 80 per cent of the value of a property.
Punjab National Bank, for instance, may not aggressively push a special scheme available until December 31 that offers home loans at 8.5 per cent for the first three years, a senior bank official said on condition of anonymity. Floating home loan rates typically range between 9 per cent and 10.25 per cent, depending on the amount borrowed and tenor.
Following RBI's directive, PNB will be forced to set aside an additional Rs 12 crore to meet provisioning, he said. At the end of the September quarter, its housing loan portfolio was at Rs 10,160 crore, of which teaser loans accounted for around Rs 700 crore.
"Teaser rate loans are a concern. Lenders use the initial lower interest rate while considering the eligibility of a borrower," said Keki Mistry, vice-chairman & chief executive officer at HDFC. His bank's special home scheme expires at the end of the month. That's when it will decide on whether to continue the plan.
The largest mortgage lender has already extended the teaser loan scheme four times since last December. It charges 8.5 per cent in the first year and 9.25 per cent in the second. In the following years, a borrower has to pay floating interest rates.
RBI has in the past expressed concern that a borrower's risk increases if floating rates suddenly shoot up. The apex bank's latest directive is applicable only to banks.
SBI was the first to introduce a teaser rate around two years ago, when there was poor credit off-take and the cost of funds was low. The scheme helped revive demand, Chairman O P Bhatt said yesterday. Without lowering a borrower's eligibility criteria, SBI's plan helped it acquire new customers and grow business, Bhatt said. Home loans make up 13 per cent of SBI's loans.
"We will wait for the initial response from (housing finance regulator) NHB. We have no plan to continue with our festive home loan offer, which gives loans at 9.25 per cent for the first five years," said R R Nair, managing director & chief executive at LIC Housing Finance. The scheme is open until November 15.
Dena Bank Executive Director A K Dutt said his bank has a teaser scheme, but it did not receive a good response.
The bank does not plan to market it aggressively.
Ratings, research and advisory firm Crisil on Wednesday said RBI's latest measures would "ensure that the credit quality in this segment, which traditionally has low non-performing assets, remains robust".
However, it warned that coupled with the 25-basis point increase in benchmark rates by RBI, the measures would nudge up home loan rates, resulting in "a moderation in demand for, and disbursement of, loans in the near future''.
In a related move, NHB is planning to prescribe provisioning norms on teaser loans and cap the loan-to-value for housing finance companies to avoid arbitrage opportunities. "So far, housing finance companies are not required to make any provision on standard teaser loans. We will come up with guidelines to ensure there is no arbitrage in the system," said R V Verma, chairman, NHB.
Housing finance companies have to keep a 100 per cent risk weight on LTV of above 75 per cent. For loans other than teasers, they are required to make a provision for 0.4 per cent of the asset.