SBI chief wants teaser loans back, ICICI Bank differs

Mumbai: The two top lenders -- State Bank of India and ICICI Bank -- are not the same page when it comes to reintroducing the controversial 'teaser loans' which were shelved four years ago as the regulator flagged asset quality issues.

Pitching for the reintroduction, SBI Chairman Arundhati Bhattacharya has said, "I still believe there is a place for teaser loans mainly because when people take loans in initial days, they need some leeway. But as time passes, a higher EMI does not pinch much as their salaries go up that can service a higher EMI."

However, the largest private lender, ICICI Bank, which has a high exposure to home loans, is not open to the idea, saying standard rates are better.

"We've always been preferring standard rates over enticing options as in the former, the customer is aware from day one what the rate is," said ICICI Bank Executive Director Rajiv Sabharwal.

"We believe that offering standard rates where rates remain uniform throughout the life of a loan is a much better proposition."

Both were speaking to reporters on the sidelines of an industry event in the city over the weekend.

Teaser home loans are offered at a fixed low rate of interest in initial years and are then adjusted to a higher floating rate for the remaining tenure.

SBI and other lenders had withdrawn such loans in 2011 after the then Reserve Bank governor D Subbarao expressed concern that such loans may pose a possible risk to asset quality.

Not exactly happy with the terminology, Bhattacharya makes it a point to clarify that teaser loans are actually differentiated EMIs, or step-up loans, where the lender charges EMIs at lower rates initially and then restores it to higher rates.

The objective of the scheme started by her predecessor O P Bhatt in late 2011, she said, was to help fresh home loan borrowers get some breathing space in initial years as they would have exhausted their resources while buying the new property.

This is the second time that Bhattacharya has batted for reintroduction of teaser loans.

"I am told that real estate stock is at a two-year high and I was thinking if it is possible to reintroduce teaser loans once again, given the fact that this is one of the portfolios where NPAs are the lowest," Bhattacharya had apparently told Governor Raghuram Rajan at an event in August.

Though Rajan acknowledged the demand, he did not play along, saying there was need to push up demand through a price cut by builders and not cheaper loans.

"I think we need the market to be clear. With growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier, but we also don't want to create a situation where prices stay high at the level, which means demand can't pick up. It would be a great help if realty developers sitting on unsold stock bring down prices," Rajan had said in response to Bhattacharya's demand.

When Bhatt had launched teaser loans, the industry led by market leader HDFC opposed the idea. But following huge demand, Chairman Deepak Parekh followed suit and the rest lapped it up too.

But this didn't go down well with the banking regulator, which asked banks to withdraw the product mainly due to fears of a credit bubble and possible delinquencies as EMIs in teaser loans go up after initial years of cheaper interest.

For SBI, the teaser loan was such a hit that it could easily overtake the erstwhile market leader HDFC and become the numero uno home loan player.