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SBI’s Teaser Loan Plan
Why is it in the news?
- The State Bank of India’s (SBI) plans to offer fixed-cum-floating home loan rates- known as teaser loans.
- However, the plan is likely to hit a regulatory hurdle as the Reserve Bank of India (RBI) is uncomfortable with such products.
More in the news
- Teaser loans are those which charge comparatively lower rates of interest in the first few years after which the rates are increased.
- The SBI will engage with the RBI for the teaser loan product which will bear fixed interest for about 10 years and then, turn floating.
- As of now, there is no fixed rate home loan product in the market.
- As per SBI, there is demand for such a product, and a fixed-cum-floating rate product could have addressed that demand.
- As per RBI, some borrowers may find it difficult to service the loans once the normal interest rate, which is higher than the rate applicable in the initial years, becomes effective.
- In addition, a bank, while extending the loan, does not take into account the borrowers’ repayment capacity after lending rates increase.
- The teaser products are not banned by the regulator(RBI).
- High Asset provisioning required:
(1) The standard asset provisioning requirement is higher for the teaser loan products.
(2) For normal home loans, the standard asset provisioning is 0.4% but for teaser loans it is 2%.
(3) Higher provisioning discourages banks from offering such products.
(4) Following the introduction of higher risk weights, banks had discontinued those products.
Source
The Hindu.