HDFC, ICICI BANK, CORP BANK WITHDRAW TEASER RATE LOANS

HDFC, ICICI Bank and Corporation Bank have decided not to extend their teaser home loan schemes, while two of the country’s largest banks, State Bank of India and Punjab National Bank, have decided to continue with their schemes till December 31.

Teaser-rate loans are multi-year loans that bear low monthly repayment in the initial two-three years. In India, banks were offering a fixed rate of interest in the first few years and a floating rate, which would be the prevailing rate of interest on a home loan, for the remaining tenure of it.

The move to withdraw the schemes gains significance in the context of concerns expressed by banking regulator, the Reserve Bank of India (RBI), in its November policy. It said that borrowers may find it difficult to service the loans once the normal rate of interest is applied. To tackle this, RBI asked banks to set aside higher capital — 2% provision from 0.40% earlier — on teaser loan schemes.

Senior officials from SBI said the scheme will be reviewed in the last week of December. “The bank will review its base rate and special loan scheme. So far, the response has been very good,” the official said. SBI was among the first banks to offer this product in 2008. It offers a fixed rate of 8% in the first year and 9% in second and third year and a floating rate thereafter.

A statement issued by the bank last month had indicated that it had set aside Rs 350 crore as additional provisioning on teaser rate loans.

It may be recalled that SBI has strongly objected to RBI terming its special scheme as teaser loan scheme. SBI chairman OP Bhatt has asked RBI to define teaser rate loans adding that such schemes are good for customers and profitable for the bank.

Meanwhile, Corporation Bank, which had originally planned to offer the scheme till December 31, decided to close it on November 30. “The additional provision will eat into the bottomline of the bank. Secondly, the bank has more or less achieved its target of lending Rs 1,000 crore under the scheme. So we withdraw the scheme,” RN Pradeep, CMD of Corporation Bank, told ET. The bank was offering a fixed rate of 8.25% in the first year, 8.50% in the second year and floating rate thereafter.

PNB has decided not to continue the scheme from January 1, 2011. “The bank was planning to withdraw the scheme on November 30. But since we have hoardings all over the country saying that the special scheme is till December 31, we thought it would not be fair on our customers to withdraw the scheme now,” said KR Kamath, CMD of PNB.

PNB offers a fixed rate of 8.50% in the first three years and floating rate thereafter under its scheme. It has sanctioned about Rs 450 crore loans so far. ICICI Bank and HDFC Bank were offering a fixed rate of 8.50% in the first year, 9.25% for the second year and floating rate thereafter.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/HDFC-ICICI-Bank-Corp-Bank-withdraw-teaser-rate-loans/articleshow/7026482.cms