Real estate news on SBI seeks nod to float teaser home loans at sub-base rate

Property loans/ Home loans, State Bank of India (SBI), Home Loan
Posted on Aug 21, 2015

State Bank of India (SBI) chairman Arundhati Bhattacharya on Thursday raised the pitch for re-introducing low-cost home loans that it had floated in 2010 in the aftermath of the global financial crisis, to kick start demand in the domestic economy.

Popularly called 'teaser loans', these home loans carried low interest rate in the initial phase -- mostly three years, and then, moved on to the then prevailing interest rates, under a pre-designed rate system. The rate was kept fixed for the initial period before reverting to the floating market rates.

SBI is now seeking nod to float such loans at sub-base rate. "I am told that real estate stock is at two-year high," said the chairman.

The proposal came up in a tete-a tete SBI chairman had with the Reserve Bank of India (RBI) governor Raghuram Rajan in the SBI Banking and Economic Conclave on Thursday.

Responding to the demand for lower home loan rates, Rajan said the apex bank would examine it, adding that there is room for a price cut in the market by real estate developers. "I do believe that if real estate developers, who are sitting on unsold stock, started bringing down prices, that would be a very big help to the sector because once there is a sense that the price itself has stabilised, then more people will be willing to buy."

"The real estate market needs to clear their unsold stock. We need to figure out ways to do it. Some of it may be by making loans easier. But the RBI also doesn't want to create a situation where prices stay high and the demand does not pick up," said Rajan.

In April 2011, SBI had withdrawn its popular teaser loan products -- SBI Easy Home Loan and SBI Advantage Home Loan, after the central bank raised concerns that the scheme could impact the asset quality of the bank's home loan portfolio. Under the teaser home loan scheme, SBI was offering lower interest rate of 8-8.5% for the first three years. Though rival banks scoffed at SBI's offering initially, many of them followed suit.

Regulators then chided such home loan schemes saying that it may lead to a subprime kind of situation.

On Thursday, SBI chairman told RBI governor, "We, at SBI, refute that (any possibility of a sub-prime kind of situation in India) because the due diligence that went into giving those loans was the same as it would have been for a regular loan. Even the eligibility was like the regular loan," She said, adding that this was one of the tipping points in the economy.

"I was just thinking if it it possible that for a little while, something of this kind can be allowed given the fact that this is one of the loan portfolios where the non-performing assets (NPAs) are the lowest at 0.28%," she told the second SBI Banking and Economic Conclave.

SBI's base rate stands at 9.70%. Base rate is a rate below which banks are not allowed to lend to their customers.

"So, there has been no bubble built up over here. And, maybe, we could also ask the realty players to bring down their rates equally. This is something that can be used as a kicker for getting the retail demand started," said the SBI chief.

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