Teaser home loan rates are cause for concern: RBI

Teaser home loan rates are cause for concern: RBI
Hindu Business Line, January 13, 2010, Page 1

Our Bureau, Mumbai

The ‘teaser' home loan rates or the fixed-cum-floating rates, which are increasingly being offered, are a cause for concern.

Banks must ensure that borrowers are aware of the implications of such rates and the appraisal takes into account the repaying capacity of borrowers when the rates become ‘normal', said Ms Usha Thorat, Deputy Governor, Reserve Bank of India.

However, Ms Thorat said that it was up to each bank to take a call on the issue.

Ms Thorat's comments are significant in view of the fact that most banks, both public and private, have come out with dual rate home loan schemes.

Under the scheme the interest rate is fixed at a low rate of 8-8.5 per cent for the first few years after which it becomes the prevailing floating rate.

State Bank of India was the first to come out with such a scheme, followed by almost all other banks. Mr O. P. Bhatt, Chairman, State Bank of India, said the bank launched the special loan scheme as it had excess liquidity and there was no pressure from the Government.

He also said that even under the normal floating rate loans, the interest rate increases after a few years.

The 8 per cent loan scheme helped SBI's present credit offtake, he added. According to Mr M.V. Nair, Chairman of the Indian Banks' Association and Chairman and Managing Director, Union Bank of India, as long as the bank does an appraisal of the borrowers' repaying capacity and is transparent about the rates, there is no issue with regard to dual rate home loan schemes.