During a tête-à -tête session with Reserve Bank of India (RBI) governor Mr. Raghuram Rajan at the second SBI banking and economic conclave, SBI chairman Ms. Arundhati Bhattacharya said: “In 2008, when the economy started faltering, one of the things that really made the demand work was the 8% home loan that SBI gave. Of course, at that point of time, it was tagged as ‘teaser’ loan. We, in SBI, refute that tag, 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 a regular loan”
This was also a point the then central government had echoed, she said. Mr. Kausik Basu, the then chief economic adviser to the government, had acknowledged this in the economic survey of 2010-11, saying introduction of teaser rate housing loans was one of the tipping points for kicking in demand in the economy.
“Today, the base rate is at 9.70%… I was just thinking if it is 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 non-performing assets is the lowest,” Ms. Arundhati Bhattacharya asked Mr. Raghuram Rajan.
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| SBI Home loan (OLD Advt) |
NPAs (Non-performing Assets) in the bank’s housing loan portfolio in the Rs. 30 lakh and above bracket stands at only 0.29%. “So, there has been no bubble buildup over here. And, maybe, we could also ask the real estate players to bring down their prices equally. This is something that can be used as a kicker for getting the retail demand started,” the SBI chief suggested.
In his response, Mr. Raghuram Rajan said, “Well, I never say no to your ideas. We will examine them.”
Mr. Raghuram Rajan, however, suggested that banks may need to frontload lending rate cuts to boost demand & help monetary transmission and developers can bring down prices, as inventories are piling up.
Since 2015 January, RBI has cut rates thrice by a total of 0.75%, but banks have cut lending rates by only 0.25% to 0.30%.
“I also believe if real estate developers, who are sitting on unsold stock, start bringing down prices, that would be a very big help to the sector, because once there is a sense that prices have stabilised, more people will be willing to buy,” Mr. Raghuram Rajan said.
He said the real estate market needed to clear the growing unsold stock. Making loans easier may clear some of it. But we do not want to create a situation where (property) prices stay at such a level that demand may not pick up to the extent necessary,” he said.
Besides SBI, HDFC & ICICI Bank too had offered teaser rate home loans from the third quarter of 2008-09, but they had to withdraw them in 2010-11 after the banking regulator RBI raised provisioning requirements on these products to 2% from 0.4%.
RBI was of the view that such loans misguided homebuyers with the promise of lower rates in the first 2 years, which would then rise to very high rates after 2 to 3 years.
Under the Easy Home Loan scheme, SBI was offering loans up to Rs. 30 lakh at a fixed interest rate of 8% (eight per cent) in the first year and 9% (nine per cent) for the next 2 years.
For home loans above Rs. 30 lakh, SBI Advantage Home Loan scheme offered 9% (eight per cent) fixed rate in the first year and 9.5% in the next 2 years. From the 4th year, interest rates of these loans were to be linked to the bank’s benchmark prime lending rate (PLR), which was then ruling at 12% to 14%.
ICICI Bank was offering an interest rate of 8.5% in the first year, 9.25% in the second year and 1.5% over and above the base rate from the 3rd year onwards.
HDFC had launched a teaser loan product in December 2009, which offered a fixed interest rate of 8.25% to 8.85% for the first year, 9% to 9.5% in the second year and the applicable floating rate for the remaining period of the loan.
Under the scheme, HDFC offered loans under three slabs - loans up to Rs. 30 lakh, Rs. 30 to Rs. 50 lakh and Rs. 50 lakh and above.
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